The Leather Pipeline - 20.09.16
20/09/2016
During the past two weeks the situation in the financial markets and in politics delivered no really exciting news.
Hillary Clinton had to take a few days off in her campaign due to health reasons, a ceasefire in Syria has been established despite an erroneous airstrike, the conflict in the Ukraine returned to the news, in many parts of Europe protesters took to the streets to demonstrate against the TTIP and CETA free-trade negotiations, EU leaders met for a summit that did not seem to produce much agreement. Normally this would have been enough to trigger some kind of reaction in the financial markets, but it seems that nothing except the US interest rate policy is of any interest today when comes to investor decisions.
Market Intelligence
September has been a period of high expectation and very little activity. The leather pipeline is trying to resume normal production and business conditions after the summer break. This usually takes a while; it normally takes until mid-October to come to clear agreement with finished product manufacturers about their programmes and material needs.
It is difficult to understand why raw material suppliers never understand the normal timings of the industry. When we talk about ‘the industry’ this also might not be totally correct because we have to take automotive production out because there, after the holiday break, production resumes immediately and normally even becomes rather active because new models come onto market after the summer holidays. For other sectors, however, it takes a while for the picture to clear regarding order books, giving tanners the necessary security for their raw material planning and purchases.
Even when the leather business is not particularly good the winter semester remains the busy period for production and the level of soaking and output of leather is traditionally significantly higher than in the summer semester. At the same time we also have a changing supply market, in which North American slaughter has seen already its peak while European slaughter has seen the lows and is going to increase significantly in the coming months. This year we have also seen a large number of hides and skins come onto market at this time owing to the dates of the Muslim festival of Eid al-Adha, which traditionally delivers in a very short period of time a large volume of raw material to the market, in particular in the Middle East. Tanners in that part of the world count on this raw material supply and many are in the position to cover their raw material needs for a pretty long time without being active at all in other raw material markets.
Last week was once again a pretty quiet one with the Mid-Autumn Festival celebrated in many parts of Asia falling on September 15 this year and a lot of production being put on hold. On top of that, Typhoon Meranti caused damage and fatalities in Taiwan and the south of China and was another factor in activity in that part of the world being pretty quiet.
The rest of the tanners and the industry are busy preparing for the Lineapelle exhibition in Milan. There might be other leather shows around the globe and many may also attract a great number of visitors and exhibitors, but there is no doubt that the biggest influence on fashion articles and the general mood of the industry is still made in Italy. The country itself might still be suffering from a great general political and economic crisis, but the innovation, the taste and the general trends in the leather industry are still made there. This means that everyone in the industry, including ourselves, is travelling to Milan in the hope that the Italian taste and feel for leather will trigger a new appetite for this natural and sustainable material.
In the meantime the leather pipeline continues to deal with the same problems and developments it has had to deal with for almost a year now. Automotive continues to be stable and is a thriving industry for the consumption of leather. Furniture upholstery has made a good recovery at the higher end, where leather is natural and beautiful and is recognised as something special and people still love to buy it. Low interest rates are encouraging the wealthy to spend money to please themselves rather than to see it melt away in their bank accounts. For the less wealthy the situation is a bit different and they are still focused on price, which is bad news for leather. In mass production and consumption upholstery manufacturers still find it more attractive to focus on cheaper material alternatives, not to speak about their advantages in production. At the low end of the leather pipeline, the industry has unfortunately managed to kill the advantage that leather used to have by making it easy to substitute. In the shoe sector the results and consequences are the same, but here it is also the result of the general decision taken by the big brands who are trying to use their own exclusive materials, which offer them benefits in price and lead times. Classic dress shoes are in retreat and the dominating sneaker brands and the sport shoe manufacturers do not care any more about leather in their products.
The raw material suppliers represented by ‘market reports’ remain in the same pattern as ever, which means they are busy writing about firmer or weaker market trends and price directions. Since they cover mostly specific regions or specific origins they might be right or wrong in their analysis and findings, as usual. However, the fundamental messages are: business as usual, prices stable, sales volumes satisfying. This news is read and spread and generally considered by the supply sources of other origins as trend indicators for their materials as well. This is not working well because the situation in different markets and for different materials is totally separate.
Without a rebound for leather as a material we doubt that the raw material being produced at present will all be needed to cover the demand for finished leather. This is already clearly the case in the markets for splits and sheepskins, where supply cannot be absorbed and material is being either stored or destroyed. We do not consider this as a simple seasonal or momentary situation and consequently it requires a general change and greater consumption of leather to restore balance.
If one looks at the low-quality end of the bovine range, this same trend is in evidence and could eventually also drag low-end bovine material into a similar situation. If one looks at some products and prices, we are definitely not too far away from this.
The split market is still in trouble. Sales and consumption continue to be low and so far we haven’t heard of any improvement in the situation, which has already lasted for quite a long time. The Lineapelle fair in Milan will tell us if the extra-cheap prices for raw material are attracting tanners and manufacturers to the idea of using this material again in larger volumes. For the well established products and quality tanners the situation remains pretty favourable. They thrive on cheap raw material prices and what is bad for the general market and split situation is good for the few who can offer specialties and high-end products.
The skins market has seen no changes either. The Eid al-Adha festival has flooded the market with more material and manufacturers can enjoy a cheap and abundant raw material supply for a long time. If one looks at the prices of leather jackets ‘ex factory’ that are circling the market, it is certainly not the price that is preventing demand from picking up. Real leather is more than competitive now and could easily return to retail if it is promoted and the consumer is willing to buy it.
We understand that a lot of people are travelling to Milan for Lineapelle, including a good number who do not usually attend. This is a clear indication that many believe it is important to go and this is usually the case when people are not enjoying the amount and intensity of business they would like. Apart from the seasonal increase in production in the leather industry, we think that Lineapelle is an important signpost of the trends in the leather pipeline for the winter semester.
So, let us see what trends are on display in Italy and what news we can bring home before we speculate about the all-important winter production.
Share this story:
