But for the recent outbreak of war in the Middle East, our focus would have been exclusively on the APLF exhibition in Hong Kong. However, everything over the past two weeks has been overshadowed by events in the Middle East. Besides the direct consequences, especially all casualties, there are also the indirect effects, included restricted travel possibilities.

The Gulf hubs have gained significant importance for many travellers in recent years. This certainly applies also to traveling to Hong Kong, and many have had to seek alternatives to their usual routes via Dubai, Doha or Abu Dhabi. This often meant significantly increased prices as well, leading to a considerable number of visitors deciding against making the trip to APLF this year. 

At the exhibition itself, aisles were relatively well-filled. The fair has become smaller. What used to spread over three floors is now housed on a single floor, and even this was not completely full. To cut a long story short, Hong Kong continues to exert its attraction on visitors, and the leather industry uses a trip to Hong Kong as an opportunity to exchange ideas with business friends and partners. Normally, a leather fair should serve for the leather industry and its satellites to present their products and, in the best case, showcase a good number of innovations. Particularly for the product leather, this plays a significant role because leather remains a product that must convince through its direct physical presentation.

Unfortunately, Hong Kong as a central melting pot for all of Asia is now of less importance. As a sales market for Europeans, the dwindling business in China is noticeable; for Chinese manufacturers, Hong Kong is certainly no longer the place to present themselves. It simply no longer holds the importance as a gateway to and from China that it once possessed. In this respect, very little can be reported regarding impressions of the fair concerning leather as a material. Conversations at the stands revolved less around business than around the general situation, which automatically leads back to the impacts of  war.

Perhaps two weeks of war is still too short a time for full analysis of the consequences. Somehow, the idea has also taken root in people’s minds that this war might not last very long and that things will, therefore, quickly return to normal. We believe this is a mistake. Even if the hostilities were to end in the coming weeks, the impacts on the region, energy prices, logistics and global security will continue to be felt for a long time. So, it is probably more sensible to engage with scenarios that take this into account.

In detail, this means that a region that has recently also played a significant role as a consumer market for leather products may cease to be such a reliable sales market for an extended period. Besides leathergoods, this of course also applies to other exclusive and expensive products that use leather, such as vehicles and furniture. Many who, for various reasons, have chosen the United Arab Emirates as their new home in recent years see their safety endangered and are leaving the region while they can. How this will affect behaviour remains to be seen. However, what must not be overlooked is the fact that while everyone talks about the restrictions on oil transports through the Strait of Hormuz, hardly anyone today considers that products moving in the other direction are equally affected. This naturally concerns not only luxury goods and the supply of shopping malls catering to tourists, but also the basic necessities of daily life. Shipping logistics are currently disrupted in both directions. The true effects will only become apparent in the coming weeks when it can be seen more clearly whether Iran can decisively block the sea route to and from the Persian Gulf. The probability of this is relatively high, as mines can be placed in various forms to act as tools of destruction.

For the leather industry, the greatest impacts of the conflict in the Middle East are rising energy prices, rising production costs, rising inflation, lower disposable income, a worsened consumer sentiment, a decline in the consumption of leathergoods in one of the most important regions for luxury goods, disruption to international logistics, and the transportation of raw materials.

If oil prices remain elevated in the longer term and reduced availability restricts the production of oil-based plastic, then leather’s competitiveness against its alternatives could improve again.

There were of course some other things discussed at the gathering in Hong Kong. Without any doubt, the industry in India is currently benefiting from various influences. We have already reported in recent editions about a noticeably increasing trend towards leather shoes. India derives various advantages from this, and these are further supported by access to cheap oil from Russia and a less burdensome tariff agreements with the US. The same would certainly apply if the emerging renaissance of leather garments were to expand on a mass scale. Of course, the fact that India is not as severely affected by transport problems also plays a role. However, one must first wait and see whether Indian ports might be overwhelmed by an increased volume of goods. Even now, the directly reachable connections to and from India are not really sufficient.

If we look at China for a moment, it was clearly noticeable that the Chinese industry remained in a waiting position after the Lunar New Year. On one hand, they were certainly waiting for the final results and publications regarding the government’s next Five-Year Plan. On the other hand, developments in the Middle East also play a significant role in China. While energy prices in China are still strongly influenced by the government and it is assumed that the government will subsidise energy prices for the industry accordingly, the uncertainty in export sales markets naturally remains significant. In this respect, the war and its effects in the Middle East come at an inopportune time for the Chinese government. The consequences could no longer be incorporated into the planning for the next five years. That is why local consumption and supporting domestic demand did not play a paramount role in the headlines of the plans.

However, it is clear at this point that without a strengthening of domestic demand in China, capacity utilisation would be severely jeopardised if exports are strained. This issue played a major role in Chinese politics just a few months ago, but at the moment, technological trends, military strengthening, AI and strategic questions surrounding energy have a much more importance.

This does not change the fact that the leather industry in China now has to make important decisions for the coming months. Those who want to be prepared for the winter and Christmas business in the main export markets must plan now, secure raw materials, and discuss details with customers. From July onwards, products must be shipped to be available in time. The same naturally applies to the major retailers and brands in Europe and the USA. Waiting is not an option, because whoever does not secure supply through planning now will eventually have nothing to offer.

As poor as consumption may have been in recent years, retailers have also reduced their stocks, and should the situation change, one could not even successfully fall back on the still-available inventory. Waiting was the dominant strategy in recent years to avoid taking risks. However, retailers have now also realised that without innovations and new trends, no stimulation of demand can be expected. Furthermore, consumption is increasingly being reduced to pure coverage of needs. That would certainly not be sufficient for business recovery, planning and the necessary sales.

This has created an interesting situation, at least for raw material suppliers in Hong Kong. Many reported that, on the one hand, very few Chinese customers had made their way to Hong Kong, but on the other hand, the representatives who did come were equipped with clear instructions. First, they were to check how much sales pressure suppliers from various continents were under, test whether significant price advantages could be enforced, and only then place a certain volume of orders to avoid risking a major shortfall in supplies.

Let us not forget here that the Chinese leather industry has basically stayed away from the market for larger volumes since the beginning of February. So those who were part of this will have returned from Hong Kong with some success at least.

Furthermore, many suppliers are naturally also using the opportunity for more extensive travels in Asia, and a final assessment can probably only be completed in the next two weeks.
Business in Europe received significantly less attention as a result. There, the focus is more on the structural change in the meat industry. This will certainly be a topic in future issues.

The split market continues to play a significant role. On one hand, demand for split leathers for suede remains high and the availability of suitable material too low, while on the other hand, the flow of raw materials for protein production repeatedly causes noticeable influences on the market. Recently, purchases by the Chinese leather industry were again influenced by rising prices for splits. Should the demand for leathers based on suede splits not decrease, then it is really high time to look into alternative solutions, of which there are plenty. We can only repeatedly point to the technical creativity of the leather industry.

If there continues to be a reliable silver lining in the leather sector, it is certainly the demand for garment leathers and wool, which is positively influencing the business for sheepskins. Prices are rising, worldwide stocks, which have been a burden for many years, are largely cleared and the outlook, taking geopolitical risks into account, is probably as good as it has been for a long time. In the coming weeks it will be interesting to see if this trend can be maintained, despite the risks.

Over the next two weeks, it will be crucial to observe how the geopolitical situation develops further. This is decisive for the leather industry. If things calm down somewhat, we will stick to our more positive stance. Should the situation escalate further, then completely new thoughts will need to be considered about how things will continue, not only in the leather industry, but across the world in the coming years.

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