The year 2026 is now beginning to take shape along the leather pipeline, albeit at a very subdued pace. In Europe, most operations only fully resumed activities at the beginning of last week. Given the still limited order intake, there was neither incentive nor necessity to ramp up operations early or to push staff to maximum capacity.

As a result, relevant developments over the past two weeks have largely remained confined to parallel levels. Geopolitical conditions continue to play a decisive role, with the sheer number of direct and indirect factors affecting the leather pipeline becoming increasingly difficult to capture. What is clear, however, is that Europe is currently suffering particularly strongly from political uncertainty, both at national and international levels. In the two key European economies, France and Germany, the political situation remains in a state of limbo, effectively blocking necessary structural reforms. The European Commission is also displaying significant weaknesses in leadership and strategic direction, further amplified by the changed political balance within the European Parliament.

At the same time, political and economic uncertainty in the US is becoming increasingly evident. The narrative that tariffs only hurt overseas is losing credibility amid rising domestic prices. Despite ongoing trade disputes and tariffs, China’s global exports remain strong and do not suggest that current US trade policies are delivering the economic outcomes expected by their proponents. Additional irritation is caused by repeated public attacks by the US president on the chairman of the Federal Reserve, whose professional competence is widely undisputed. The accumulation of often inconsistent national and international decisions is fuelling general unease and undermining confidence in economic predictability.

Developments in Iran are also leaving a significant mark. The entire Middle East is affected by the political situation there, regardless of the direction it may take. Fears of growing instability are widespread.

These factors are clearly weighing on consumer sentiment across most regions. The narrative that “experiences are more important than ownership” is particularly detrimental to leather-based consumer goods.

Within the leather pipeline itself, there have been only a few substantial developments over the past two weeks. In Europe, the most significant news was that one of the two well known Austrian automotive leather manufacturers has gone into administration. The fact that a leather producer in Europe may be forced to close did not come as a surprise to regular market observers. Notably, however, the company had long been regarded as financially solid and structurally strong, and was not considered an obvious early casualty. The administrators are now seeking to minimise losses for creditors through an orderly winding-up of operations. The success of this process will largely depend on whether the reported asset values withstand realistic market valuation.

The immediate question was whether this represents an isolated case or the beginning of a broader trend. Opinions differ widely and are often driven more by individual interests and expectations than by objective analysis.

Insolvency events involving well known companies inevitably have significant secondary effects. Credit insurers and banks increase their scrutiny of the entire sector. More restrictive lending, reduced credit lines and lower insurance coverage could place additional pressure on other companies. Businesses with higher levels of external financing, in particular, must prepare for intensified scrutiny. Such developments do not necessarily affect only the weakest players, but can also impact structurally sound companies.

Additional European automotive leather suppliers are currently reporting weak financial performance in publicly available disclosures. Should negative signals continue to accumulate, the issue will rapidly gain momentum and breadth. It must also be recognised that some companies are heavily dependent on financial investors. In such situations, banks, insurers and investors primarily focus on securing their capital and minimising potential losses. Willingness among private owners to absorb losses over extended periods is rare.

Overall, the risk potential for further disruptions within the sector is clearly increasing. A key upcoming milestone will be the 2025 annual results, most of which are expected to be available by the summer.

Beyond this, there are some stabilising elements. The planned increase in US tariffs on Chinese furniture imports has been postponed for another year. While tariffs remain in place, the reduction in immediate uncertainty may support higher import-export volumes over time. As leather-upholstered furniture continues to play a meaningful role in the US market, this could improve order intake for the Chinese leather industry, though not before next season.

At the same time, raw material suppliers report growing interest in raw hides in China, accompanied by continued and aggressive price pressure. This raises the question of whether the raw material component still plays a decisive role in price formation at all. In more detailed discussions, it becomes apparent that the cost component of hide prices has become almost dominant, while intrinsic product value is increasingly marginalised.

The segmentation of leather products by quality and price level has become significantly imbalanced. The vast majority of leather is sold at prices that leave little realistic return for the raw material itself. The former compensation effect from higher-priced premium leathers, particularly in Europe, continues to diminish as the market share of such products contracts. Consequently, raw material quality is losing relevance; size and split yields are becoming the primary calculation drivers. Even superior hides rarely achieve higher leather prices. Markets and quality levels are increasingly decoupling, and the leverage of quality differentiation continues to weaken.

Whether this assessment proves to be the defining trend of the coming months should become clearer in the weeks ahead and will likely shape the outlook for raw material markets.

Activity in the split market also remains limited. Demand has eased, and the availability of inexpensive raw materials for the collagen industry is exerting downward pressure. Nevertheless, overall protein demand remains solid and continues to represent a meaningful outlet for bovine hides.

In the sheep and lambskin segment, rising wool prices are becoming increasingly noticeable. Particularly for medium and coarser wool qualities, the still historically low skin prices offer an attractive option for wool recovery, potentially even without immediate processing. In practice, however, this is rarely pursued, as semi-processed goods can be stored and do not tie up additional capital. Whether this represents a sustainable trend or merely a short-term opportunity remains an open question.

Globally, our contacts share the view that no fundamental changes are likely in the coming weeks. Seasonal impulses are absent, and the Lunar New Year holidays are approaching (February 17). While planning discussions and potential product adjustments are ongoing, concrete decisions are likely to be postponed. Any momentum would require either an unexpected renaissance of leather in mass production or speculative stocking of low-priced raw materials, particularly in Asia. The primary obstacle remains political uncertainty and the erratic decision-making of individual actors. Under such conditions, few are willing to commit to long-term decisions. Success will likely be limited to those capable of navigating this environment, or simply those who are favoured by circumstance.

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