Geopolitics continues to play a decisive role in developments along the leather pipeline. US trade policy is increasingly focused on relations in Asia, while relations with Europe continue to cool in many respects. Even if tariffs between the EU and the US are not currently in the news, trade relations remain complicated and difficult, particularly for those European exporters that have to maintain a significant market presence in the US. Not every company can comply with the wish of the US president and establish production facilities there.

The main problem, however, remains uncertainty in planning, which not only concerns tariff decisions but also the general political situation in the US. The shutdown of US government agencies in September has a direct impact on consumption. Significantly deteriorated consumer sentiment published in early November can only be seen as an indication of this.

In Europe, consumer sentiment is likewise heavily strained. On the one hand, the danger of war remains high and continues to weigh on consumer confidence. Leathergoods are not part of people’s basic needs, and therefore weak consumer sentiment has an exponentially strong impact on the leather supply chain. Increasingly, fears about job security and concerns about the financial stability of government budgets within the EU are having additional negative effects.

Although employee representatives everywhere continue to try to defend their interests, many have now realised that in the end, only what has first been earned can be distributed. The reflexive call for higher taxes on the wealthy and the deeply rooted expectation that the state will ultimately be available as a guaranteed source of income still largely shape public opinion.

On the political front, the European Union Deforestation Regulation remains a major problem for the European leather supply chain. Its origins go back several years, and anyone who looks back honestly will remember that at that time, anything even remotely connected to climate policy was regarded by companies as untouchable. There was no courage to confront policy coming from Brussels with clarity and firmness. The geopolitical situation is now entirely different. The political entanglement has become so deep that it will be extremely difficult, even with great creativity, to find a way out.

For now, we must wait for the European Parliament’s decision on the latest proposal, to impose EUDR on large companies from the end of December 2025, to know in which direction this issue will develop.

Basically, more than two years have already passed since the law came into force, which legally creates a situation in which the EU regulation could be completely renegotiated or even abolished. Politicians should do that first, and only then discuss possible new ideas and solutions. The EU regulation is not only poorly designed; it also completely ignores international developments and the current political reality. Public mainstream opinion was considered more important than the clear difficulties that exist in implementing the regulation. 

For the European leather industry, this means that considerable company resources have been wasted, and more importantly, that investments and developments have had to be postponed owing to planning uncertainty. And all this while production costs in Europe have risen faster than ever before. The result today is massively worsened and more expensive production conditions, now faced with a significant decline in consumption that also goes hand in hand with falling prices. Rising costs, declining revenues, and planning uncertainty: it can hardly get much worse. Unfortunately, that is the situation in which almost the entire European leather industry currently finds itself. A few exceptions can be gladly acknowledged, but they do not change the overall situation.

With the massive decline in leather demand for European producers and the simultaneous rise in demand for proteins, new trade-flows have emerged. But with falling leather production, considerably fewer by-products are now available for various protein uses. As this market is clearly growing, efforts are being made with increasing intensity to compensate for this gap. More tanneries are now being used primarily for the first stage of production, while the further stages – up to finished leather – remain significantly under-utilised. Naturally, this is completely unsatisfactory in terms of the value-creation a tannery must achieve.

The questions that are now being discussed more intensely from day to day revolve primarily around the fact that the use of cattle hides in the protein sector is just as affected by EUDR as leather production itself. It is still astonishing that many people, starting with slaughterhouses, are not aware of this. The number of those who see the protein sector as the solution for the utilisation of cattle hides has increased considerably, yet many are not aware of this fact.

Once again, this raises a very simple business management question. In the end, for any product, it always comes down to what kind of value creation and revenue can be achieved. A cattle hide, however, is not a uniform material and offers a broad range of possible uses, quality and price levels. This applies especially to European hides, which, due to their quality, still offer higher revenue potential at the upper end of the market. However, this spectrum can only be reliably assessed after hair removal. Only then can one decide in which value chain the highest revenue is possible. More and more people are now dealing with this question and the variety of revenue options. The surprising part is that it is often not the leather manufacturers themselves who are looking for alternative revenue opportunities, but rather the processors and marketers of splits and other by-products from leather production.

At present, many secrets still surround these new possibilities and alternatives. Some may have better knowledge of the revenue chains than others, but the information and expertise do not seem to be widely shared. Assuming that EUDR does not obstruct these developments, there are strong indications that we are currently in a destructive phase for the utilisation of cattle hides. This also means that many of the traditional industrial processes established in recent years will have to be rethought. The optimisation of yields and the reduction of production costs in the leather industry would then no longer be the main focus, and the lack of flexibility could become one of the biggest obstacles for companies optimised only for industrial leather production.

In Asia, by contrast, all these issues currently play only a secondary role. There, the focus is mainly on securing and possibly increasing leather sales. With falling raw material prices and weakening consumption, this naturally translates into massive price pressure. Consequently, the focus of Asian leather manufacturers is almost exclusively fixed on the raw material price. Purchases are being made, and with the abundant global supply of raw materials, opportunities to secure low purchase prices abound. Every attempt by individual supply markets to enforce higher prices has so far failed. Price pressure remains, further intensified by the high level of competition in the leather market. Nevertheless, it can be observed that Europe’s problems are not evident in Asia in this form.

However, this also means that, with low hide prices, the cost components of collection, processing, and transport are becoming increasingly significant. Cost advantages now simultaneously open up additional marketing opportunities. This also implies that a generalisation of raw material prices currently makes little sense: the return for one market may be attractive, while for another, owing to location and transport costs, sales at the same price may not yield equivalent returns. Consequently, generalised price reporting, as is often practised in many market reports today, can hardly be regarded as a real reflection of market prices.

It can be assumed that many within the European leather industry have now come to terms with and accepted current realities. Decision-makers will very likely now have to discuss intensively how they intend to deal with the situation in the near future. A cyclical recovery, as has always somehow occurred in the past, is currently not in sight. If this season is lost (and that will likely become clear in the coming weeks) decisions on further production cuts or changes will have to be made quickly. Production capacities in the leather industry that close rarely return.

There is no need to elaborate further on the split market at this point. Demand for splits used in suede leather remains stable, while supply is insufficient. The same applies to splits used for protein production. As a result, more and more whole hides are being processed as substitutes for this standard raw material. Even here, there would be several alternatives and creative solutions that could still generate benefit from the current market situation. In Asia, the importance of limed splits has recently declined, but the supply of wet-blue splits remains far from sufficient.

As for sheepskins and lambskins, although no one wishes to speak of an improvement in the situation, we are slowly getting the impression that the severely limited supply is now having an effect on the markets. High-quality and special skins even show rising prices. In particular, fine-wool skins for premium garments and linings have seen slight price increases, keeping in mind that these types were never all that cheap in the first place. For other types, particularly those that are becoming increasingly scarce, the potential value of the wool itself is beginning to play a more significant role.

Moreover, it is now recognised, especially in south Asia, that prices for this type of raw material will not fall any further. This is hardly surprising, since prices in the range of $1 or $2 per skin do not even cover collection and preservation costs. Therefore, it is unlikely that such low prices will be sustainable. Consequently, there are a few larger processors currently willing to build up stocks at very low prices, rightly assuming that the market risk for this material is minimal.

We are now rapidly approaching the period of interruptions caused by the Christmas holidays and the Chinese New Year. It is the same every year, but under the market conditions currently prevailing in Europe, combined with major logistical problems toward Asia, further aggravated by the multi-week New Year shutdown, planning is becoming increasingly difficult, especially for raw material suppliers. In the coming weeks, it will become clear to what extent European tanneries will plan their production for December and January, and for overseas shipments one must expect an almost four-week break in loading. As this affects not only the leather supply chain but virtually all maritime logistics, significant disruptions in deliveries must be expected. All in all, the coming weeks are likely to remain full of major challenges.

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