Leather Pipeline: All eyes on Shanghai
The timing of this publication might not the best, with everyone now in full anticipation of the leather fair in Shanghai (All China Leather Exhibition, September 3 to 5) - not simply because it is the show for leather sales, fashion or trends, but also because it has become the big get-together of the leather pipeline at the beginning of the new season.
Although everyone is getting faster information, people still value face-to-face meetings and personal contact – otherwise, there would be very little reason for many to go.
This has become even truer as some information has been questionable for a while. Information has become a marketing product and is sold like any other product. It is being manufactured, not for the sake of informing but rather for the sake of selling it or using it as a selling vehicle. It seems this is happening in the leather pipeline, too.
In the past weeks the markets remained in a state of expectation. It is not just a question of if it happens, but also, will you know about it? If you don’t think you have the information then you just grab what is sold to you. See above.
The serious activity in the past weeks was reduced and only those with a clear picture about their business in the coming months were willing to act. This was in part owing to the holidays and in part to the unclear picture.
However, there are exceptions and these are coming from the usual suspects. The automotive tanners around the globe remain the locomotive in the sector. We had the opportunity to speak with some of them and depending on the company policy they were between positive and enthusiastic about the business outlook for the rest of the year. Order books are full and whoever deals with them can be pretty sure of a busy time, and no negative influence from the crisis in Russia or the Middle East is apparent so far.
The strong growth in the sector is also underlined by new factories in Asia and considering that the use of leather in vehicles and other transport systems is not collapsing soon the market share in leather consumption will grow significantly in the years to come.
This rise has prevented the market from seeing too much turbulence and other sectors are on the retreat as far as the use of leather is concerned.
If we look at the collections of the large sports and casual footwear brands for models made from leather you can see that leather is slowly becoming a specialty item.
For the moment the price rules, and the mass manufacturers and global brands find it easier and cheaper to please their customers with more models, fancy designs and shiny colours made from alternative materials.
We should not forget that the lifetime of a fashion product is getting shorter. So for young people and average-income fashion aficionados it might be better to buy a new pair every season. With the material argument fading, price, manufacturing issues, price stability and quality security are becoming the dominating factors at the lower end of the price range of leather retail products.
Leather is becoming increasingly a value and image factor – what it always wanted to be, but so few are achieving it. Now could be the time for changes which have been predicted for decades but have yet to materialise.
Into this environment the news that Lear has bought Eagle Ottawa, which means the biggest auto seat maker bought the biggest auto leather producer, shines a light on vertical integration.
Previously, raw material producers went upstream and became leather producers, but now it is happening the other way around - which is further streamlining the leather pipeline.
Those who compete for material with the large conglomerates as far as price, supply and consistency are concerned should see the writing on the wall. It is not just raw material that comes into play but also chemicals, machinery and qualified technical management. These could become in short supply for the others, or at least more difficult.
So, more than ever, for those in the leather pipeline who cannot call themselves the global key players should begin to think about the future and how they are going to deal with the challenges.
In the end, it is another restructuring of the supply chain where new relationships might have to be secured quickly.
However, for the moment the good news is that where individual businesses are getting bigger there is more space for the small to shelter – as many specialists do successfully. If you don’t fight the changes, but use them, the leather sector remains a field of opportunities.
The split market is beginning to find a bottom. Customers are returning and on the basis of a 30% correction since the levels in spring, business has started to pick up. This applies mainly to the standard wet blue splits. The situation for lower-grade lime splits in particular in China remains difficult and many think there is no light at the end of the tunnel. But it is only a question of time. The demand for gelatine and collagen products will rise again and this should stabilise the market sooner rather than later.
The skin market is still a two-tier field. Skins suitable for the wool-on products are turning quite well and the decoration, lining and double-face business is stable and enjoying the reduced cost of raw material. However, for the nappa market the missing fellmongering capacity in China and the collapse of demand for garment nappa is a disaster for many suppliers.
Medium and low end skins for fellmongering are not finding the clients they need and only the cheapest of the cheap are finding their way into low cost operations in the Middle East. It is a one-time opportunity for creativity in shoe and handbag leathers to make use of the supply, the quality and the price wherever one can. We are missing production capacity to use them all after the shutdown in China, but it is good to see that more than one is successfully experimenting with tanning processes and developing leather that can substitute the expensive bovine where little price relief is expected soon. We sincerely wish those that are working on it and have developed impressive articles already all the success they deserve. Hopefully the potential buyers are flexible enough and take the opportunity for the seasons to come.
Now everybody is focused on Shanghai. We don’t believe that the fair will offer too much news as far as hard facts are concerned. The real market movers on the demand side will not even be there or are just sending some ‘ambassadors’ to sniff around. Their business is not done at the shows these days. It more a kind of entertainment to see what the others do and if and how they struggle. If some news can be grabbed, ideas collected and relationships tightened, everyone will be happy.
For the rest, we believe it will remain just the poker game of trying to make everybody believe what suits. Buyers will try to argue why the prices will come down and sellers will do the opposite.
It is pretty unlikely that we will see the same as last year when the fair opened and all the Hebei tanners were on the stands buying in the first six hours whatever they could get their hand on. This then made the market for almost six months until their tanneries were closed.
We are now waiting for the next surprise. It is now a ‘fair spotting’ for some, because many will go from Shanghai to Milan [to Lineapelle, September 10 to 12] and if they are lucky they can leave the laundry at home before getting on the plane again. From Milan, the top end of luxury leathers will move on to Paris [for Le Cuir a Paris, September 16 to 18], but this is only the small specialists who have found their way into the thriving specialty segment.
As far as prices and business is concerned we don’t expect too much from the fairs except possibly at the edges. For the rest and mainstream we can just be sure that packers will stick to their pricing policy and will not make the concessions many tanners are hoping for. However, we have to admit that we still don’t share the same optimism as many sellers do. The sheer numbers remain against them so far.
