The first half of 2025 has come to an end. This is a good time to take stock of the current year so far. There has not been much positive news to report for the leather supply chain. Demand for leather as a material continues to decline, and the discussion is more about the fundamental causes of this than addressing the question of how to change the situation.

Of course, it is easy to blame the global situation for the problem, but that would be too simplistic. Much of it also has to do with how the leather industry has handled its product presentation and marketing in recent years.

Macro influences also play an important role. In addition to the war in Ukraine, there have also been conflicts in the Middle East. None of these has been resolved to date. Immediate risks, such as a massive rise in oil prices, have been averted, as has the further spread of the conflict. 

US tariff policy has a great impact on the world. At the time of writing, only a few bilateral agreements, including the recent one with Vietnam, have been reached. Vietnam is, of course, a very important negotiating partner because a large number of consumer goods for the US market are manufactured there. In our sector, this affects a large part of the footwear industry, as well as several other sectors that also deal with leather.

In addition to tariffs, the situation in the currency markets also plays an important role. The US dollar depreciated by up to 16% against the euro in the first half of the year. Exporters from Europe must take this into account in their calculations, in addition to tariffs. It is a package. Either the customer pays, which is rather unlikely, especially when demand is one of the core problems, or it is at the expense of the seller.

This is the case with leather and leather products. However, a final assessment of the impact on the supply chain in the leather industry can only be made once a precise overview of the tariffs is available. This is likely to happen in the coming weeks. We would repeat that tariffs are only part of the overall package of burdens in international trade and that currency’s influence, at least in the case of Europe, will be a significant part of the overall combo of burdens.

The significance of this whole issue was also evident last week in announcements from several luxury goods companies. They pointed out that currency influences are having a negative impact on their business development. Let us remember that it was not so long ago that some luxury goods companies were relatively relaxed about the fact that they would simply pass on any tariffs in their pricing and did not expect any real negative effects on their business development. They pointed to the strength of their brands and the low level of price-sensitivity of their high-end customers. This is probably no longer tenable today, which is why we should consider how strongly this will affect the lower end of the price ladder.

In this context, it should also be noted that the ratio of raw material costs to production costs for leather has shifted dramatically in recent years. There used to be an old rule of thumb that the raw material share in a leather factory’s cost calculations would account for approximately 50%, on a long-term average. Even though there are different values for the various types of raw materials, as for finished leather, this rule of thumb has long since ceased to apply; the cost share of raw materials has fallen dramatically, and with it the leverage on the price of finished leather. The same applies, incidentally, to the calculation of the by-product of hides in the slaughter industry. The massive fall in cattle hide prices has meant that revenues from hides and, thus, the share in a slaughterhouse’s revenue calculation have become almost negligible.

Perhaps some campaign groups, which have been enthusiastically claiming for years that cattle are not only slaughtered for their hides, but also that hides play a decisive role in the profitability of meat companies, might consider this new situation. As little truth as there was in their previous arguments, these have even less validity today.

On the raw materials markets, it has been noticeable in recent weeks that China is still purchasing relatively large quantities of hides. This is remarkable in that almost everyone in China reports that the leather industry there is facing very low orders and continues to report significant inventories. As far as we were able to gather from our sources in China, we were only able to find out that these purchases are being made by a few large companies, which in turn are said to be receiving large orders from the military and state security agencies. This is difficult to verify, but information about state policy in China would certainly explain such behaviour. Additional buyers are said to include companies that still have sufficient financial resources. They consider the raw material prices irresistible and simply want to maintain their production levels.

It is undisputed that exports of leather and leathergoods from China are currently relatively weak owing to the trade conflict. Local consumption in China also remains weak, and anyone who travels to China at the moment and remembers the well-stocked, glittering shopping malls of a few years ago is now more likely to see yawning emptiness and bored salespeople in the large shopping malls.

This news is naturally accompanied by the information that the Chinese internet shopping platform AliBaba plans to distribute shopping vouchers worth a total of $7 billion to its customers in order to stimulate local demand. Such ideas also point to a certain degree of influence on the part of the Chinese state, which is desperately dependent on economic activity and consumption in China recovering.

Staying with the commodity markets, much of the discussion at the moment revolves around the question of how big they actually are and what should and will happen to the stocks of semi-finished goods that are scattered across the globe, waiting for orders. The shelf life of these goods is not infinite, storage and financing costs are not negligible and can only be justified if, on the one hand, there are prospects for sales and, on the other hand, there is justified hope of compensation for the costs invested. As always, opinions about the future vary widely, but the bare facts for the coming months offer little cause for optimism. Optimists point to reduced slaughter in some regions of the world, but this thesis is hardly tenable in terms of overall volume. Others point to rising production and demand for proteins, which is easing the pressure on the market. In terms of quantity, this is undoubtedly correct, but in terms of price, it is hardly to be expected that this could lead to rising prices for raw materials and for leather. 

The conclusions to be drawn from this are relatively simple. If there is little change in the supply situation for raw materials and, at the same time, demand for leather for the corresponding end products will not increase significantly.

There is, then, no realistic prospect of rapid utilisation of current stocks. If these basic assessments are correct, then there are two decisions that must be made by those affected. On the one hand, a further increase in stocks can be avoided if production remains constant. On the other hand, decisions will still need to be made regarding the goods already in stock today.

Many people are probably taking these questions with them on their summer holidays, and there are many good reasons to assume that some will have to make decisions immediately afterwards. Owing to the low prices, the manageable capital commitment and the owners’ still sufficient financial resources, panic measures are unlikely. From a purely commercial point of view, however, the age and valuation of the goods in inventory may also play an important role.

We can, once again, skip our brief review of the situation in the split market. There are a few niches in which split leather plays a role, but otherwise split leather, as a cheaper alternative, has almost completely disappeared at the moment and lost its function. As a result, its use has increasingly shifted towards proteins. Wherever possible, attempts are now being made to steer production in this direction. In many cases, this is not possible for technical reasons, but the market has functioned well in this regard and the shift from wet blue splits to lime splits has been supported by the demand situation.

There is also little new to report on sheepskins. In Europe, the season for young lambs is currently under way, which in the past has always generated sufficient demand to sell at least this part of total annual production. This year, however, it seems to be more difficult, even though supply is also shrinking significantly. The prices currently quoted are around 30% below last year’s levels, and above all, very weak demand from the major players in China is having an impact on the market. Frankly, however, we also see a lack of creativity in this area.

In many cases, there is still a strong tradition of using lambskins because of their excellent properties. In China in particular, efforts are constantly being made to adapt technologies and offer consumers attractive products. Unfortunately, this repeatedly leads to one-sided demands on the raw material, resulting in selective demand for certain types of goods, while others are completely neglected. This is not always understandable or logical. That is why, for example, the price difference between small, light and fine wool skins and larger, slightly heavier types is currently extremely large again. Whether this is really perceived as such by the end consumer is doubtful, to say the least.

Two things are likely to be decisive for the leather pipeline development over the next six or eight weeks. On the one hand, of course, there will be the final results of the tariff negotiations. Whatever the final conditions may be, they will certainly affect some supply chains. The effects of this will, of course, have a short-term impact on price developments, and in the long term, new investment decisions may be necessary.

On the other hand, we believe that, owing to the poor prospects for a rapid improvement in demand, business decisions will have to be made at many levels. In addition to the difficulties regarding demand, the ever-increasing hurdles and bureaucratic requirements in Europe may also play a significant role. The administrative bureaucracy in the European Union and the ideological interests some politicians and campaign groups are tightening their grip on the leather supply chain like a noose. Large corporations are naturally less threatened by this, but for an industry that is more organised around medium-sized companies, this is a threat that should not be underestimated and could even be fatal. Here, too, final decisions are expected after the summer break.

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