The first weeks of September 2025 have been marked by growing uncertainty in international financial markets. After a relatively stable summer, the overall environment has deteriorated noticeably. A mixture of geopolitical tensions, restrictive monetary policy and weak economic data from China is shaping sentiment. Markets are nervous, and institutional investors are increasingly shying away from riskier commitments.

While the major stock markets in the US and Europe did not suffer dramatic declines, the bond market shows clear signs of scepticism. Yields on long-dated government bonds remain elevated, pushing up financing costs for companies. As a result, capital is being directed more cautiously toward resource-related industries, a development that indirectly affects the market for hides and skins.

Geopolitical conditions remain fraught with uncertainty. The ongoing tensions between the US and China continues to weigh heavily on many value chains. New export controls on high-tech products and machinery are putting additional strain on the automotive sector, traditionally one of the most important buyers of leather. In Europe, ongoing conflicts in Eastern Europe and tensions in the Middle East are depressing business confidence further.

For the leather sector, which is highly globally integrated, this translates into higher transport costs, longer lead times and rising risk premiums. Many companies are responding with caution and postponing investment decisions.

Particular attention is focused on China, where deflationary tendencies have become entrenched. Several times this year, consumer price indices turned negative, pointing to weak domestic demand. Industrial overcapacity and a struggling construction sector are weighing heavily on sentiment.

For the leather industry, this is doubly problematic. On the one hand, the purchasing power of Chinese consumers is falling, leading to weaker sales of shoes, bags, and furniture. On the other, Chinese tanneries themselves are under pressure: they are forced to sell at shrinking prices while facing high fixed costs.

In parallel, developments in the livestock and meat sector are weighing on the industry. For 2025, agricultural economists are forecasting a decline in global beef production. The main reasons are rising feed costs, tighter environmental regulations, and shifting consumer habits.

Climatic factors are exacerbating the situation. In South America, prolonged droughts have resulted in poor grazing yields. In North America, spring floods and summer heatwaves have reduced cattle herds. In Australia, a combination of wildfires and drought has severely impacted production. These developments are leading to lower slaughter numbers and, as a consequence, to a tighter supply of hides and skins.

The situation is paradoxical: demand for leather products is weak, yet the supply of raw materials is shrinking. For tanneries, this creates a difficult balancing act. Rising procurement costs can hardly be passed on in a weak market environment. The result is thinner margins and growing pressure on already strained businesses.

This year’s All China Leather Exhibition (ACLE) in Shanghai failed to meet the industry’s expectations. It was clear beforehand that fewer international visitors and exhibitors would attend – and this forecast was confirmed. In particular, foreign tanneries and international raw material suppliers either stayed away entirely or participated with a much smaller footprint.

Organisers tried to paint a positive picture of the market situation. But inside the exhibition halls it was evident that these optimistic statements did not resonate. The pressure on the industry was too apparent. Many discussions focused less on new products or technologies and more on how to survive the difficult market conditions.

One striking development was the purchasing behaviour of Chinese tanneries: instead of securing high-quality raw material, they have focused increasingly on cheaper grades, not for leather production, but for protein production. This illustrates how severely traditional leather manufacturing is under strain.

Global demand for leather continues to fall. This is most visible in China, where leather production fell in the first half of 2025. This represents a continuation of a trend already evident last year. However, the consequences in the number of tanneries have not yet been seen. Travelling in China and visiting the various tannery clusters shows that many tanneries are closed or idle.

A similar statement could be made for Italy. In Italy, one of the world’s most important centres for leather processing, the mood is equally subdued. After losses in recent years, industry representatives expect further declines. Small and medium-sized companies in particular are struggling with falling orders and higher production costs.

One sector remains relatively stable: leather use in the Chinese automotive industry. Yet this stability is deceptive. It is less the result of robust demand and more a consequence of overcapacity in vehicle production. European carmakers, meanwhile, are already reporting declining call-offs for the coming months.

The leathergoods industry is also offering little in the way of positive news. More brands are reporting declining sales than growth. Particularly in the premium segment, a clear shift is emerging: the “bling-bling era” seems to be coming to an end. Flashy designs and inflated brand premiums are losing appeal and approved quality, traditional manufacturing and the trend for ‘genuine things for my money’ gains momentum.

In a way, this has also been evident in the clothing sector for some time now, with workwear increasingly becoming a lifestyle in many markets and gaining ground, especially in men’s fashion. Masculine boots have also gained ground. Boots and other items that require thicker materials are not ideal products for the use of plastic, the wearability and usability of which are inadequate.

The few positive reports are coming from brands that manage to strike the right balance of quality, classic design, brand strength and reasonable pricing. These companies are able to retain customers even in difficult times. But the number of winners remains small, while the majority of the sector is shrinking.

The split market shows little momentum in late summer. The sharply reduced production of bovine leather has led to a corresponding decline in supply, for further leather processing and for raw material supply in the collagen and gelatine industries. While potential solutions are clear, they have so far only been implemented to a limited extent.

Splits traditionally serve as a cost-effective substitute for full-grain leather. Considering the price structure of lower-grade hides, these are actually better suited as a replacement for lime-split. In some applications, the properties of full-grain leather are superior. However, the creative and competent solutions that tanners could offer often remain unused. The main reason lies less with production than with buyers: their rigid specifications, product standards and certification requirements leave little room for flexible approaches. Today, it is no longer the production experts who decide on the use of leather, but increasingly less knowledgeable purchasers. These buyers strictly adhere to written guidelines, often blocking the manufacturers’ innovative potential. In short, the best solutions are no longer negotiated; paperwork dictates the process.

In lime-split for the protein industry, part of the livestock sector, particularly in South America, has already acted and built factories that process the entire hide directly. This has two consequences: raw material is now missing in other regions, and the supply of protein from the new producers is increasing. With globally stable or slightly rising demand for proteins, this supports demand for lime-split among producers in other regions and could, in the medium term, intensify competition in finished product markets. How this development will ultimately unfold remains to be seen. In the best-case scenario, protein demand continues to rise, which would also positively affect the value of hides. At present, it primarily helps reduce disposal of raw material.

There is still little new to report in the market for sheep and goat leather. Here too, the industry is waiting for the upcoming trade fairs to see whether “the original” can regain market share, whether technical innovations might make leather more attractive again in apparel, and whether new niches for leather can be created. The difficulties in the leathergoods and luxury segments currently leave considerable room for this, as can already be seen in demand: leather that does not come from the standard and mass reservoir of raw materials is drawing more attention. In China, many initiatives continue to focus on fur substitutes made from sheepskins. In the bag segment, some brands are already experimenting with unusual leathers based on sheepskins.

For the coming weeks, industry participants expect little change. The sector appears to have adopted a wait-and-see attitude. All eyes are now on Lineapelle in Milan (September 23-25), scheduled for the near future. From this fair, companies hope to receive clearer signals. Which trends will prevail? Which orders can be secured for the next season in the footwear and bag industries? Only then are more concrete indications of market direction in the coming months expected.

Until then, the mood remains characterised by caution, scepticism and the hope that the bottom of the cycle may at least be approaching.

Looking further ahead, three possible scenarios emerge. In the best-case recovery scenario, global growth stabilises, central banks ease monetary policy and consumption picks up again, allowing leather to benefit from renewed focus on quality. In a stagnation scenario, persistent geopolitical uncertainty and alternative materials weigh on demand, as well as deflationary tendencies in China. Finally, in a transformation scenario, the industry diversifies more aggressively, invests in sustainable processes and, through innovation, secures new growth paths. For companies this implies the need to remain flexible and invest in sustainability, digitalisation, and partnerships to stay competitive.

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