As the year draws to a close, it has become more evident than ever that the geopolitical and economic environment along the leather supply chain has shifted significantly in the past 12 months.

The increasing fragmentation of trade zones, more volatile consumption patterns, regulatory interventions and a noticeable relocation of production capacities have created an environment in which past certainties are losing relevance while new dependencies continue to emerge. Nowhere is this more apparent than in Europe, where persistently high energy and labour costs, stricter environmental requirements and rising financing burdens are undermining the economic foundation of many price-sensitive product groups. Segments that for years formed the stable backbone of European leather production are losing their viability. The consequences are already visible: production is shifting to lower-cost regions, European downstream manufacturers and brands are becoming more dependent on external supply chains, and a structural erosion of industrial capacity is taking place, an erosion that may accelerate further unless fundamental adjustments are made.

Against this backdrop, the recent decision on the European Union Deforestation Regulation (EUDR) merely postpones the time pressure, but this is still a matter of some urgency. The relaxation of the original timeline offers short-term relief, but the fundamental issues remain unaddressed. The technical infrastructure required for comprehensive traceability is still incomplete, data availability along the supply chain remains insufficient and the role of the “operator placing the product on the market” is not yet fully clarified. As a result, the industry remains in a regulatory limbo that complicates planning and delays investment decisions. Many market participants are deliberately operating on a short-term basis, postponing necessary modernisation and compliance projects. The EUDR decision does not resolve any of the structural challenges, it simply extends them and delays the point at which companies will inevitably have to reposition themselves.

Developments over the past two weeks clearly reflect this uncertainty. In the processing industry, call-offs are declining, production windows are being shortened and capacities reduced. Even long-standing customers are revising their demand planning for the coming quarter, often opting for more conservative volumes and avoiding long-term commitments. In downstream manufacturing, inventory reduction remains the main priority, and appetite for new projects is low. Price increases are difficult to implement, and activities are frequently being shifted into the first months of next year.

On the brand and OEM side, caution continues to dominate: the automotive sector is still grappling with uncertain sales volumes, particularly in the electric vehicle segment. The furniture sector remains focused on cost optimisation and conservative purchasing. The luxury market is stable but lacks meaningful growth drivers. The raw material market mirrors this picture: supply is adequate, but offtake, especially for Asia, remains weak, putting prices under continued pressure. Trading activity is exceptionally low, driven by buyers and sellers who are consciously opting to wait.

In this already challenging environment, the merger of JBS and Viva Group to form the new entity JBS Viva carries particular significance. With more than 30 production sites worldwide and an annual capacity exceeding 20 million hides, a player emerges whose vertical integration, financial strength and global reach can have lasting effects on market structures. For mid-sized and smaller tanneries, this significantly increases competitive pressure; such a large operator can influence price levels as well as efficiency and quality standards across the industry. For brands and OEMs, however, this development may offer advantages: more stable supply chains, greater scalability and a growing reliance on large, dependable partners. JBS Viva thus represents a structural turning point, one that extends far beyond the merger itself and is likely to reshape the dynamics of the global leather supply chain in the long term.

Another structural factor gaining importance is the persistent imbalance between global hide supply and leather demand.

While global tannery capacity is theoretically sufficient to process the available hides, the worldwide supply of raw hides has for some time exceeded the real demand for leather and this trend appears to be solidifying. Raw material producers and suppliers are currently trying everything to mask or solve the situation, but under present conditions this is barely feasible, especially with the additional disruptions caused by the upcoming holiday periods. The unavoidable consequence is that part of the raw material must be permanently diverted away from traditional leather production into alternative uses, primarily protein-based or energy-related applications.

As long as this structural demand weakness persists, returns for raw materials and finished products will remain under pressure, as competitive dynamics within the supply chain tend to push prices below the minimum thresholds required for economic viability in many tanneries. Under these conditions, a trend reversal appears unlikely. Instead, the industry will be forced to adjust its structures with adjustments that, once implemented, are not easily or quickly reversible. The result is a long-term, profound reshaping of the value chain, the effects of which will become increasingly visible in the years ahead.

The developments of recent weeks are a direct reflection of these broader trends and offer a clear indication of how the supply chain may position itself in 2026. It will be more cautious, more concentrated, more integrated and increasingly shaped by a few large players, while many smaller market participants continue to lose room to manoeuvre. At the same time, opportunities are emerging, particularly for those actors capable of conducting clear cost and value analyses, responding flexibly to market requirements and managing production volumes dynamically. Companies that correctly interpret global price and cost structures and consistently align their decisions with these realities can leverage the current market phase to gain strategic advantages. For them, the tightening of the industry landscape offers the possibility not merely to sustain but to selectively expand their market position.

In parallel, evidence is growing that production within the global leather supply chain may continue shifting towards Asia. This trend is particularly visible in footwear and leathergoods, segments traditionally characterised by economies of scale, cost efficiency and short decision cycles. Increasingly, however, there are indications that parts of the automotive and upholstery leather sectors could follow, provided quality requirements, delivery reliability and compliance standards can be consistently met. Asia offers notable advantages: competitive cost structures, a large and specialised labour force, established industrial clusters and growing technological capabilities. Challenges remain, such as regulatory frameworks, quality assurance, political stability and environmental standards, yet the region’s structural advantages are hard to ignore.

For many global buyers, the question is no longer whether production will shift there but rather to what extent and at what pace such a move can occur without destabilising their supply chains.

Overall, the leather industry ends 2025 as a sector in transition, shaped by profound shifts, growing dependencies and new strategic options. The developments of recent weeks are more than short-term market movements, they reflect the underlying forces that will shape the global leather value chain in 2026 and beyond.

In the market for splits from leather production, no significant changes were observed over the past two weeks. Protein production remains the primary focus, and in Europe only limited volumes from leather processing are currently available to serve this demand. Resulting shortfalls are largely compensated by the processing of full hides. Velour splits remain in trend for the upcoming footwear season, which, combined with reduced leather output, means that fewer suitable materials are available for these purposes. For the moment, however, these factors are secondary, as the holiday periods, first in Europe and subsequently in Asia, temporarily dampen market activity. A clearer directional trend is unlikely to emerge before late January or February at the earliest.

At present, there are no indications that anything in the general market environment will change in the coming weeks. This is not due to a balanced or stable market situation, but rather to the lack of ambition along the entire leather supply chain to initiate major changes or impulses in the short term.

Whether this restraint is appropriate or misguided remains uncertain; in any case, it will do little to alter the fundamental market conditions, and any effects will appear only with considerable delay, if at all. In reality, the core issue is not the market situation itself but time. It is entirely possible that leather could become a more attractive material again in the future, but such developments unfold along the supply chain in different and often asynchronous rhythms.

For leather producers, this timing gap could become problematic, as it typically takes at least one, and more often two seasons before shifts in consumer-side material demand translate meaningfully into upstream production. This implies a timeframe of at least six months before structural developments can materialise. As a result, meaningful input will remain scarce in the coming weeks, and if any emerges, it will likely stem from sectors not directly connected to the production chain, such as geopolitical decisions or central bank policies.

Ultimately, the decisive factor will be the market restart in the new year, which will not take place before mid-January in Europe and mid-February in Asia. In addition, several important trade fairs could reveal early indications of whether leather may indeed experience a noticeable revival.

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