Leather Pipeline - 14.01.20
14/01/2020
Our regular readers might have been already a little bit bored by our cautious and pessimistic view on the leather pipeline which we had taken for quite a long time and certainly also already much earlier than many others. At the end it turned out that we had been correct at least in tolerable variation. Our long term view which we had generally taken and which was pretty pessimistic for the future of leather and the consequences for the leather pipeline was a good handle for somebody wanted to take decisions in this business.
Our regular reader has also understood that we have begun to change attitudes and views a little since last summer. We are far from being enthusiastic and excited, but we think that our opinion that the drama could see an end gets more support as further time progresses. When we start from the raw material base we had always pointed our finger on the fact that before things get better they have to get worse what actually meant all the congested low grade material had to face whatever kind of solution to lift the pressure of the market.
We are far away from exclaiming already problem over, but there’s no question that not only good portion of the massive congested stocks have been cleared, but also the extra cheap prices have triggered more leather demand, because where leather is an option it has become a competitor again to plastic. We mentioned also already a while ago that consumers need sometimes attraction but in general is called ‘fashion’. Fashion is a subject of many different kinds. It can be brand, it can be design, it can be social trends, but it can also be materials. The market for leather is also not uniform. Many will remember that the decline in the consumption and use of shoe leather started already somewhere in the middle of the last decade. At the same time automotive leather and luxury leather goods were still on the rise and far away from the peak. As a footnote we should also mention at this stage that in general global private consumption had been on the rise in a non-stop trend until today. This means that even expanding private consumption leather in total lost ground in the final shot in the arm came when also the automotive industry finally turned their back on leather for various questionable excuses. With the exception of luxury handbags and leathergoods all other market segments were in contraction just for the sake of the anti-leather material trend. Not for the sake of a poor economy.
They have been many reasons and all of them are still valid today and had been discussed and analysed over the past years. The anti-beef campaigning which peaked obviously in the year of 2019 delivered in addition the impression that the end of leather could be close. Superficially this was easy to justify, but at the end it is the same exaggeration as we were used to when leather demand and raw material prices peaked in the years 2015/16. So it might be the time to swim against the current again. Like one was well advised when everyone was seeing leather demand and raw material prices breaking new records every month. On the upside people have learned that every bubble bursts eventually. On the downside they are not so much used to the fact there is also a potential recovery after every collapse.
Certainly the situation is a bit more complicated than just be explained by the general ups and downs of a market. Leather is today far more depending on ‘fashion’, because only in terms of economics it has massive difficulties to compete with alternative materials. The good news for leather is that 7.5 billion potential consumers can still decide on what they are willing to spend their money. They feel something is more ‘fashionable’ or desirable they go for it and with the rising expansion of global population and possibly stagnating raw material supply the fundamentals are actually not too bad. Again it is not a question of leather or non-leather, but a challenge for leather and non-leather.
The manufacturers and retailers will most likely not fancy a return. More cost and complications in manufacturing are not a very inviting perspective. However, if the rising use of leather in the gadget section, mobile phones, sleeves for computers and the strong performance of garment leather in high street fashion sends the signal which is picked up in the Internet community things have a very fair chance to return to the better. Just recently we got various sources reporting that they see a strong performance of high rise lady boots for the next winter season. Unfortunately we do not yet dispose of confirmations, but the sources are competent and reliable and they confirm that the leather orders are already placed as well. As usual the start begins when prices are low and this is actually the case too.
In one of our issues in early autumn we discussed already the fair chance that the consumer might just look for the ‘real thing’ again. This was exactly when the anti-beef hysteria peaked and looked pretty weird at that time. Looking back into history we had a lot of hysterias from BSE, to the general collapse of the global banking system, from bird flu to swine flu and when we look back not much has been preserved and very little of the apocalypses is forecasted really happened.
The people close to leather and those a little bit less emotional and general public opinion driven know and knew that leather has so much to offer and in particular it is one of the most sustainable materials of all if sustainability is defined by the potential life cycle and usability of a material. Nobody knows of course what is really going to happen and there’s nothing more difficult than to forecast the future. We have now a great number of tradeshows ahead of us and they will tell us which way we are going to go and what we have really to expect. The directions are set in the coming months and the results and consequences harvested in the second half of the year.
The split market was very quiet. We believe to sense a little ease in the gelatine and collagen demand were a bit of the influence of the ASF effects seem to fade. As far as the leather business for splits were concerned we could not trace any real news during the festive season.
In the ovine section a lot of players report strong interest for cheap skins from the Middle East during the holiday season. At prices from USD 0,60-1,50 quite large quantities of all kind of skins were sold. The impression that a combination of demand for lining, gloves and garment had bolstered some courage of tanners to take position and to grab whatever they could lay their hands on materializes. Buyers were very strict on prices ,but if their ideas were accepted volumes where no problem and they were willing to take what was offered. From our perspective it seems that tanners realize that the time of endless supply at under par cost and price is over and the old stocks are either putrified and gone and destroyed and replenishment at levels below USD 2,00 per pcs is not so plentiful.
In the coming weeks we will collect more news towards which direction we are heading. The Chinese are now winding down for the New Year holidays while in Europe activity is further recovering to reach full standard levels again. The phase one agreement between China and the USA has lifted some of the concerns of Chinese exporters and they are willing to plan and be somewhat more optimistic further into 2020. The de-escalation of the Iran/USA conflict has also created a return of optimism and one may think about Mr. Trump whatever one wants, but he is sensible to what is bad for business. A conflict and military activity in the election year is certainly not a goo idea.
All in all we are looking for a stable trend in coming week and the massive surplus of raw material supply has definitely reached a better balance again. All problems are not solved and they could return quickly too, but the fundamentals look far better than six month ago and as we said already this summer. Market get always back into balance eventually in whatever way. So, we have changes our trend arrow for the leather pipeline from down to stable for the moment and hope we will be able to move it further up later in the year 2020.
Share this story:
