A month ago we wrote about the outbreak of a new conflict in the Middle East. It must be noted, quite soberly, that little has fundamentally changed in terms of our overall assessment. However, our hope at the time that this would be a short-lived escalation, with neither severe nor long-term consequences, has unfortunately not materialised. Although a ceasefire was officially announced, it has neither been consistently upheld nor has it led to any meaningful de-escalation. The Strait of Hormuz remains effectively constrained, tensions between Israel and Hezbollah persist, and between Iran, the US, and the Gulf States there is little indication of a stable or credible ceasefire or peaceful stability.

Against this backdrop, the geopolitical environment remains volatile and difficult to interpret. Ongoing negotiations, including those that took place in Pakistan, have so far provided no clear indication of a sustainable resolution. Instead, there is a growing sense that political decisions are being made on a short-term basis, lacking predictability and not necessarily guided by a coherent strategic intent. Agreements are reached, yet their reliability remains questionable. For markets, this translates into continued uncertainty, which is directly reflected in elevated energy prices, constrained logistics capacity, and an overall fragile global supply situation.

The impact on international shipping deserves particular attention. A significant portion of global capacity remains either unavailable or only deployable at increased risk. The discussion around so-called ‘safe corridors’, subject to toll payments, highlights the absurdity of the current situation: free trade, historically based on open sea routes, would effectively be subject to controlled access; who exerts that control is not the point. For globally integrated industries such as leather, this results in higher transportation costs, longer lead times, and significantly reduced planning reliability.

Market developments over the past few weeks clearly reflect this environment. Overall activity in the raw material segment has declined noticeably, while order intake across the leather industry has fallen well short of typical and expected volumes. The near-total lack of visibility and planning reliability has led many market participants to postpone decisions and focus solely on what is absolutely necessary in the very short term. In plain terms: a near-complete paralysis of the market. In an industry characterised by long and often inflexible supply chains, this represents a substantial and additional risk.

The consequences of this hesitation extend far beyond the immediate situation. There is a real risk, one that applies not only to the leather sector, that decisions affecting entire seasons will be made too late. Production cycles that require long-term planning are disrupted, and delivery deadlines may no longer be met. The already observed disruptions in logistics further exacerbate this issue. One only needs to recall the stalled transport capacities around the Persian Gulf: vessels being offloaded in Africa, shipments temporarily stored there, while elsewhere ships, containers, and goods remain stuck for weeks. In some cases, delays now exceed four weeks, timeframes that are extremely difficult, if not impossible, to compensate for in seasonally driven markets.

Against this backdrop, the mildly positive sentiment with which we concluded our last edition must now be reassessed. The expectation of a short-term stabilisation has not materialised, and current market signals point more toward continued uncertainty than recovery.

Within this macroeconomic and geopolitical context, the question arises as to how global consumption, and the leather industry and its various segments in particular, are being affected. Over recent years, the industry has already undergone significant structural changes ranging from increasing polarisation between mass and luxury segments, to the growing relevance of alternative materials, shifting regional demand patterns and an intensified focus on sustainability and transparency. The current situation acts as an accelerator of these trends.

One of the key drivers remains the cost structure across the entire value chain. Rising energy prices directly impact production, particularly in energy-intensive processes within leather manufacturing. At the same time, costs for chemical inputs, logistics, and financing continue to increase. This cost pressure coincides with weak demand, especially in the mass market. Consumers are highly price-sensitive, increasingly shifting toward cheaper alternatives or postponing purchasing decisions altogether. All prices will most likely need to rise as a consequence of higher cost for everyone.

Within this context, a development that has been mentioned before, but has now gained significant momentum, deserves particular attention. It is the alternative use of hides as a protein source. Contrary to common perception, this is no longer a phenomenon limited to Asia. Rather, it is increasingly evident on a global scale that lower-grade hides, in particular, are being diverted away from traditional leather processing and used for alternative applications.

The underlying drivers are clearly economic. Persistently weak demand for mass-market leather has led to significant downward pressure on both finished leather and raw hide prices. In many cases, the achievable prices barely cover the costs of collection, preservation, and transportation. At the same time, food prices, particularly for protein, are rising. In such a context, the use of hides as a protein source or add-on becomes increasingly economically viable.

This trend is further reinforced by current conditions. Rising production costs for leather continue to erode margins, while demand for affordable protein sources is increasing. As a result, a growing share of raw material is being diverted into alternative value chains. For the leather industry, this represents a structural shift on the supply side: the availability of hides, particularly in lower-quality segments, is decreasing or becoming more volatile.

This development has several implications. On the one hand, it exacerbates existing tightness in certain segments, particularly for the standardised raw materials used in mass production. On the other hand, it leads to further market segmentation. High-quality hides, or hides with special performances used for special, premium and luxury products, remain relatively stable in terms of availability and pricing. In contrast, lower-grade segments entering industrial mass production experience greater volatility and increasing competition between different end uses.

At the same time, demand remains highly segmented. While the mass market continues to struggle, the luxury and specialty segment shows relative resilience. Leather benefits here from its positioning as a high-quality, durable, performing and natural material. However, even in this segment, requirements regarding transparency, sustainability, and traceability are still increasing, despite questionable benefits. Companies are not only expected to deliver high-quality products but also to credibly demonstrate the conditions under which they are produced.

Another relevant factor is the development of alternative materials. In recent years, considerable attention has been given to so-called ‘vegan’ alternatives. Under current conditions, however, it is becoming increasingly apparent that many of these materials are also highly dependent on energy and raw material inputs. Their competitiveness therefore depends not only on technological advancement but also on relative cost developments compared to leather.

At the same time, the perception of leather itself is evolving. While it has been subject to criticism in the past, there is now a growing recognition that leather is a by-product of the meat industry. In an environment in which resource efficiency and circular economy principles are gaining importance, this can be viewed as an advantage, provided the industry is able to communicate this argument in a consistent and credible manner.

Regionalisation of markets continues to advance. Companies are increasingly seeking to reduce their dependence on global supply chains by focusing on regional sourcing and production. This leads to a reconfiguration of trade flows and alters competitive dynamics. At the same time, new challenges arise in terms of quality assurance, standardisation, and scalability.

Overall, the picture that emerges is one of high complexity, characterised by both uncertainty and ongoing structural adjustment. The industry is navigating a phase in which short-term volatility and long-term transformation are occurring simultaneously. Decisions must be made under conditions of limited visibility, while the underlying framework continues to evolve.

In this context, it appears more appropriate to think in terms of scenarios rather than precise forecasts. A base scenario assumes that current uncertainty persists without a major escalation. In such a case, the continuation of existing trends can be expected: sustained cost pressure, differentiated demand, increasing alternative use of raw materials, and ongoing regionalisation.

A more optimistic scenario would require a gradual stabilisation of the geopolitical environment. This could lead to a partial normalisation of energy prices, improved supply chain stability, and a modest recovery in demand, particularly in the mass market. However, the structural shifts, especially regarding alternative uses of hides, would remain in place.

A downside scenario would involve further escalation of conflicts, with significant implications for energy supply, transport routes, and global trade flows. In such a case, severe disruptions on both the supply and demand side would be expected.

Regardless of which scenario ultimately unfolds, it is evident that the leather industry is increasingly operating within a framework defined not only by traditional market forces but also by new structural realities. The alternative use of hides as a protein source is not a short-term anomaly but a reflection of shifting economic incentives. Combined with geopolitical uncertainty, rising costs, and evolving consumer preferences, this creates a market environment that is significantly more complex and less predictable than in the past.

The coming months will determine the direction and intensity of these developments. Until then, it remains essential to monitor key drivers closely, maintain flexibility, and continuously reassess underlying assumptions. Owing to a lack of market activity, we thought it was good to describe and discuss again  the frame conditions of our industry.

We continue our analysis by turning to additional developments along the value chain, where the structural shifts outlined above are becoming increasingly visible in concrete market behaviour.

The reduced production of leather is naturally leading to a corresponding reduction in the availability of splits. These serve a dual function: on the one hand, as a secondary raw material within leather production itself, and on the other hand as a key input for the collagen and gelatine industries. The extent of this effect varies regionally, but it is already playing a significant role, particularly in Europe. In this context, recent market intelligence indicating that a major supplier to the collagen and gelatine industry has acquired a large and well-established leather plant in Slovakia is particularly noteworthy.

This facility, originally designed and structured for fully integrated leather production, is now expected to shift its operational focus. This development can be seen as a clear manifestation of the structural transformation we have been describing. While the plant will not exclusively be used in the future to convert raw hides into inputs for the collagen and gelatine industries, it is evident that the balance of use will shift. It will be a highly interesting test case to observe whether such a reweighting of production priorities within a traditional leather facility can be economically successful. In reality, similar configurations already exist across Europe. For some time now, a number of leather plants have been allocating part of their capacity to early-stage processing steps such as soaking, liming, and unhairing, effectively supplying semi-processed raw material to downstream industries rather than completing the full leather production cycle. Regardless of the specific outcomes of this latest development, it clearly illustrates the ongoing structural transformation within the value chain of hides as a by-product of the meat industry.

Turning to the market for sheepskins and lambskins, we observe a continuation, and indeed an intensification, of the trend that has been evident for some time. The shortage of wool, combined with a renewed interest in leather and shearling products within the apparel sector, remains clearly visible and is gaining further momentum. Skins that only a few months ago were either unsellable or could only be placed at very low prices are now attracting increasing interest, and prices are continuing their gradual upward trajectory. The primary driver of this development, however, remains the potential revenue derived from wool extraction. In this context, the role of the Chinese industry is particularly significant. Demand for wool remains strong, while prices for skins are still comparatively low. At the same time, importing salted skins offers a fiscal advantage, as import duties are effectively applied to a single product rather than to multiple value components derived from it. This combination of factors creates a compelling economic incentive. Despite the broader global challenges outlined earlier, our current assessment is that this positive momentum in the sheepskin and lambskin segment is likely to persist in the coming months. While volatility cannot be ruled out, the underlying demand drivers appear sufficiently robust to support continued firmness in this market.

As for the concluding outlook section of this publication, it seems reasonable, given the prevailing conditions, to approach it with a certain degree of caution. Under circumstances that remain highly uncertain and difficult to interpret, any attempt to formulate precise forecasts for the coming months would inevitably be speculative. 

Nevertheless, we remain convinced that the fundamental parameters supporting leather as a material have, for some time now, been more positive than negative. This, however, is far from a simple or uniform picture. The individual conditions and starting points of the various players along the value chain differ too significantly to allow for generalised conclusions. The current environment will not be universally favourable or unfavourable; rather, it will create opportunities for some while leaving others with very limited or no room for manoeuvre.

In this sense, the coming weeks and months are likely to be both highly challenging and, from an analytical perspective, particularly interesting. For the objective observer, the interplay of geopolitical uncertainty, structural market shifts, and evolving economic incentives will continue to provide a complex but revealing picture of an industry in transition.

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