The leather supply chain has shown little additional momentum over the past few weeks. This can be seen in publicly available market reports as well as in daily conversations with customers and suppliers. We have an essentially unchanged market situation. When fundamentals hardly move, more space is inevitably taken up by interpretation and assumptions. That is exactly where the market currently stands.  

In geopolitics, there are few signs of progress. Anyone who wants to understand the nervousness of the global situation only has to follow the daily movement in crude oil prices. It is there that the sensitivity of markets to tensions is most obvious. Risks to transport routes and uncertainty about future supply are particularly visible.  

In the markets for raw material and leather products, what has been noticeable for months has intensified in recent weeks. In Europe, demand is almost exclusively concentrated on higher-quality leather, while in Asia the focus is mainly on leather suitable for the high-volume production of shoes, furniture or automotive interiors. Everything outside this narrowing window is not necessarily unsaleable, but it is becoming increasingly difficult to place. 

A strategy of simply carrying on and hoping that, at some point, somewhere and somehow, the general demand for leather will rise strongly enough to clear existing inventories is not convincing. There is no shortage of isolated positive news, but there is a lack of breadth, depth and continuity in demand.  

Only a small segment of iconic brands and products is still able to preserve the status of exclusivity and realise values derived from the idea of collectability, uniqueness or scarcity. Wherever one looks, identification and the idea of social advancement through luxury products is losing force. This does not mean that luxury is disappearing. It means that luxury must be justified differently. The sharp price increases of the past have alienated many consumers. Especially in leathergoods, pressure in China has recently been particularly visible. Expectations for a recovery of the luxury segment as a whole remain cautious.  

At the same time, products that are convincing in their quality are still capable of gaining market share and being sold at appropriate prices. The problem is not that the desire to consume has disappeared. The wish to treat oneself to something small or large does not vanish because of inflation fears, declining real incomes or geopolitical tensions. What has changed is the willingness to accept price increases merely because of a logo. The consumer has become more selective. Quality, material, durability and value for money are being examined more closely. For leather, this represents a risk and an opportunity.  

What is already visible in leathergoods and bags could, in our view, also become a very real option in the footwear sector. Here, however, the influence of fashion and the ideas of shoe producers must be combined in such a way that leather once again appears as a natural, high-quality and deliberate material choice. We remain convinced that strong attention must be directed towards the properties of leather. For the consumer, shoes often look more or less the same. The challenge remains unchanged: how can we make consumers more aware of the benefits of choosing shoes made from leather?  

With today’s communication possibilities, this should not be an unsolvable task. However, waiting solely for initiatives from brands, manufacturers or retailers is unlikely to be particularly successful. It is not necessary to convince every consumer. It would already be enough to set new trends and make leather visible on the finished product as a recognisable, explained and deliberately chosen material. But if leather remains invisible in the end product or is only mentioned in fine print, it cannot tell its story. And as long as it does not tell its story, it will continue to lose differentiation in competition with substitute materials.  

The furniture sector is traditionally very closely linked to real estate markets. Since furniture usually involves larger purchases, this sector is particularly exposed to macroeconomic pressure. High financing costs, uncertainty in property markets and more cautious consumers have a direct effect on demand. In the basic question of how much leather is used in furniture production, however, the mechanism is not completely different from footwear. There are few compelling arguments as to why a sofa or seating group necessarily has to be made of leather. In many cases a decision in favour of leather furniture is more a matter of emotion, taste and interior design preference than of strict functional necessity. The difficulty of the situation in this segment can be seen in the available results of large global brands. 

In the automotive sector, the rumour persists that the Chinese car industry is increasingly opting for leather interiors, even in its extremely tough competitive environment. As is well known, interior design, software and in-car entertainment play a much more important role in China than in many other markets. It is therefore possible to see brands trying to benefit from the image of leather in vehicle interiors and placing it more prominently in their product descriptions. However, when looking at the Chinese car market, which has been slow for several months, with brutal competition and an ongoing price war, it is difficult to assume that leather can be much more in the short term than an attractive phrase in a sales brochure. The most recently available data again show a significant decline in passenger car sales in China, while competition remains particularly intense in electric and plug-in hybrid vehicles. 

Unless leather in the finished automotive interior also reaches an appropriate price level, this trend is unlikely to bring much benefit to the leather industry. On the contrary, there is a risk that manufacturers advertise with leather, while the willingness to pay along the supply chain does not increase accordingly. Leather would then become a marketing argument at the end-product level, but a procurement price argument at the supply level. For tanneries, this would be the most unfavourable combination: more requirements, more standardisation, more quality pressure, but no sufficient improvement in margins. What can easily be read from all this is that price pressure on leather is unlikely to ease in the foreseeable future. 

We have already written many times about the weak and further declining competitiveness of the European leather industry. Even if a definitive analysis of actual costs at the different production locations in the world may not be possible, it can nevertheless be stated with certainty that cost differences of easily more than 30% between Europe and Asia, starting with India, are visible without having to calculate with excessive precision. At the low level of raw material prices, the leverage on the final leather price has only increased further in recent years. 

If one also considers that the further processing of leather has increasingly moved away and continues to move away, this gap widens even further. Raw material, tanning, finishing, manufacturing, further processing and the final product are moving further apart geographically and economically. Europe still has know-how, tradition, quality understanding and, in some cases, specific raw material qualities. But know-how alone does not protect the industry if customers are unwilling or unable to pay the cost difference. Every market participant will have to draw their own conclusions from this for their own position and business.  

In bovine raw material, we also need to discuss the fact that slaughter figures remain under pressure in origins that have traditionally supplied better raw material. Prices for live cattle and meat rose sharply until the beginning of the year, particularly in Europe and North America. Since leather production for medium and higher qualities is concentrated in these regions, the position of sellers has improved for many selections, without the position and prices of finished leather improving accordingly. Current market data from North America continue to point to a tight cattle supply situation, lower production volumes and significantly higher prices for cattle.  

Into this already tense situation came the news from the US about New World screwworm, which was detected in a calf. This issue should not be dramatised, as such an infestation can be controlled and does not necessarily lead to an uncontrollable epidemic development. Nevertheless, we all know that such raw material issues can very quickly enter the consciousness of leather factories. Once a serious defect is seen as a possibility, other blemishes are often brought back into the discussion of raw material assessment. Buying restraint for reasons of risk limitation alone can therefore not be ruled out.  

We are now entering the summer period. On the one hand, this leads regionally to lower the kill; on the other hand, it also coincides with the summer holidays of the European leather industry. Whether these two trends will compensate for each other over the next six to eight weeks, or whether they will create additional market distortions, will only become clear later. At present, much suggests that good raw material will remain relatively well supported, while weaker selections will be traded increasingly selectively and with price-sensitivity. 

The market for splits has calmed noticeably. Although there is certainly still sufficient interest in suede split, the heat has come out of demand. This does not mean that the market has collapsed. It means rather that the special momentum of recent months has calmed down. The same applies to the protein sector, where normality has returned to the markets. So far, this has not had any particularly serious impact in the various sectors, which may also be linked to the time of year and production cycles. Nevertheless, it is another sign that special movements currently lose momentum more quickly than they did some time ago. 

In sheep, lamb and goat skins, the impression we have had for some time has strengthened further over the past few weeks. Good and usable wool is playing an increasingly important role in price and demand. Demand from China for Northern European lambskins, which had been almost neglected for years, continues to increase. This is still probably driven less by demand for nappa leather than by the value of the wool. For the producer of the skins, however, this is ultimately irrelevant. The decisive factor is not which component drives the value, but that a value can once again be realised. 

At the same time, demand remains very good for specific, high-quality lamb and hair sheepskins, as well as for light and fine-wool lambs. Prices have, almost unnoticed, returned to a certain degree of normality. Unless something extraordinary happens, this trend could continue into the next season. In a market environment in which many leather segments are characterised by weakness, selectivity and restraint, this is remarkable. It shows that markets do not function everywhere in the same way and that individual qualities, origins and end uses can develop their own cycles.  

For the coming weeks, we have little reason to assume that the situation described above will change significantly. We are at the end of the second quarter. The summer holiday season begins in the northern hemisphere, seasonal changes are prepared, more is planned than is actually produced, and relatively little tends to change until the end of September. Of course, surprises are always possible in today’s world. There will certainly be renewed speculation by the end of August as to whether the fairs in Shanghai and Milan might bring about the great market change. 

In Europe, the focus will certainly increasingly be on whether all tanneries will still be producing at the end of the year. This question may sound harsh, but it is not unfounded. The combination of weak demand, high costs, structural competitive pressure, selective raw material availability and the absence of price improvement in leather is extremely challenging for many companies. Those with sufficient liquidity, specialised customers, clear product positioning and good access to raw material will get through this phase better. Those standing in general competition without clear differentiation will come under increasing pressure. 

The overall assessment therefore remains sober. The market is not moving dramatically, but that is precisely part of the problem. A crisis that escalates quickly and visibly forces decisions. A slow, sticky and months-long weakness, by contrast, is often administered for too long. That is exactly what we are currently seeing in many parts of the leather supply chain. People manage, administer, maintain relationships and wait for better times. But waiting on its own will not be enough. Without new demand impulses, without clearer material communication, without more honest discussions along the supply chain and without a realistic assessment of cost structures, the market in the coming months will continue to be shaped more by adjustment than by renewal.  

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