We have reached the last year of the first quarter of the millennium. We would like to start by wishing our regular readers a Happy New Year in the hope that, above all, everyone will stay healthy, have lots of fun and, of course, that everyone will live in peace. Everything else can usually be influenced by your own decisions.

The world has not come to rest in recent weeks either, but the leather pipeline is rarely directly aligned with world events. That is why it has taken a break on most continents in recent weeks, and after the many problems and difficulties in our industry in 2024, many were probably also very happy to take a break from the business side of life. However, there was no complete peace and quiet in the final weeks of last year either.

There are always those who continue to monitor all developments and, wherever possible, make decisions and remain active. A number of sources reported enquiries from Asia, almost all of which were aimed at finding a supplier somewhere who was prepared to sell goods well below the current market prices. However, this did not seem to have met with much success, as no significant sales were reported.

On the one hand, this may have been due to the low prices, but on the other hand, the sellers probably did not see any great need to make further sales at those prices during the holiday period. It is assumed that sales at low prices will still be achievable in January.

However, it is probably also the case that too much uncertainty has built up regarding market developments over the next few months. Nobody wants to make any far-reaching decisions at the moment. Despite the longer delivery times to Asia, there is, with existing stocks, no major pressure on the procurement side. The situation regarding the new US president’s future policies remains too unclear, but the suggested tariffs on goods from China would trigger significant price increases, particularly for shoes and furniture, for which exports from China to the US play a large role.

The development of the national market in China also remains unclear. The Chinese government is doing all it can to boost national consumption, but Chinese consumers are still not really responding. The property crisis is still having an impact and weak demand nationally and internationally is forcing many companies to cut back on labour, which is further hampering consumption.

After the Chinese New Year, which this year falls on January 29, further meetings of the political leadership in China will take place, which should lead to additional measures to stabilise domestic demand. At the moment, many companies are planning to extend their holiday break and, in addition, small and medium-sized companies in particular will probably want to wait and see how things develop and what political decisions are made. It can therefore be assumed that our sector will remain without any major impetus in the coming weeks, and without any clear decisions. However, in our experience, the reactions in China to one development or another can be very strong.

Negative information will probably lead to a number of the smaller, private manufacturers closing down. In this phase of the very unstable situation, this would, of course, have negative consequences, but there would still enough supply and inventory of goods along the production side. However, if the positive news outweighs the negative, and the Chinese government is able to trigger positive momentum in the consumer goods markets in China, the wind could very quickly turn in favour of the positive. We continue to believe that the national Chinese market for consumer goods in particular will be of crucial importance for the production of leather.

Should the proposed tariffs in the US come into force, the impact on many areas of the global economy would be large. Many supply chains would have to be recalculated and reconsidered. Everything will depend on whether the proven and functioning supply chains in China will be seriously threatened by the tariffs. For the leather industry, there are alternatives where production could be relocated to if there is sufficient demand. Many relocations have already taken place, particularly in shoe production. Some have been relocated to other parts of south-east Asia and some to the Indian subcontinent. The potential in South and Central America and Africa has not yet really been tapped. 

In addition to these very important political influences and the general question of what significance leather will still have as a material in the future, there was another overarching megatrend that dominated the year 2024: artificial intelligence.
In the leather industry, this was more of a side note. The topic really only played a role in defect detection systems, which various providers tried to place on the market with varying degrees of success. The high cost of these systems represent a high barrier, so it is not surprising that up to now they have come into use almost exclusively in the automotive supply chain. Otherwise, although there is a great deal of interest in this topic and its possible applications, it is still not very widespread. Only when prices fall significantly and productivity increases will the systems really be able to establish themselves. As so often in history, machines will then replace people. Technically and economically, it is a question of when not if.

The question that arises for us is which parameters should apply to the use of AI, because, in the end, these also determine the price. In mass use, leather is in direct price competition with alternative materials. These are usually characterised in particular by the fact that they do not have the ‘defects’ observed in leather. In addition, we are mostly talking about industrial production chains in which the fundamental properties of leather are already massively restricted by production and finishing processes. A great deal of effort is put into finding ‘defects’ that actually have nothing to do with the properties of leather. This means that the detection of defects in leather merely represents additional cost without improving its function. It is also not unimportant to mention that in the automotive industry, where these systems are currently being used, many big brands have already made public their intention to do without leather wherever possible in the future. This means that investments and costs in the supply chain are being enforced without a commitment that the material will have a future.

Of course, there are defects in leather that affect the the cutting yield. However, these are usually extremely obvious and therefore relatively easy to recognise by machine. The real problem remains that most deviations in appearance or structure do not mean any restrictions in function. They are merely self-imposed downstream restrictions that almost never mean a functional restriction. Artificial intelligence and the ever-increasing computer capacity bring clear advantages in the detection of deviations. However, the effort required to recognise errors is significantly less than what is expected and demanded of the systems today. It is highly likely that this will soon be recognised and implemented by the markets.
In addition to pure defect detection, robotics will probably also play an increasingly important role in the processing of leather in the future. At the moment, the market for this type of development is still too small.

For us, the competitive processing of leather is the real key to the future of the product. It is unmatched by any alternative material and its superior properties will not change. Leather produced in the right way and coupled with the latest manufacturing technologies does not have to hide from any other material and will remain competitive for the time being, if you want it to. Otherwise, leather will just become an exclusive, niche product.

As long as there is no material that achieves the same properties without the use of fossil-fuel-derived raw materials, there is at best only a marketing problem. No other obstacle can further restrict leather’s use. These obstacles exist only in the minds of the mainstream in recent years. Until the meat and leather industries develop effective ways of presenting leather, the public perception of the material will remain the only major problem.

The split market has been dominated by public holidays. Splits are facing the same scenario as bovine hides with regard to competition from alternative materials. The market for collagen is becoming increasingly important. The cheaper the hide and the less leather produced, the more attractive the available material becomes for use in other markets. The added value of collagen can be quite high and the capacity utilisation of existing production facilities also plays a major regional role.

Here too, however, the market has not yet found a real balance. The growth in capacity has been higher than the increase in demand. Production costs and the availability of raw materials also play a decisive role with regard to locations. The year 2025 will bring further decisions on production locations for different product types and, in the medium term, will probably also bring supply and demand back into greater regional balance.

We are still starting 2025 with very little optimism. There are still a whole series of developments that need to be clarified. Most of these are of a political nature. Until then, very little of note is likely to happen in the leather industry. On the one hand, we are in the middle of the season and major changes in orders are not to be expected. It is therefore more a question of how the industry assesses its situation and business from summer 2025 onwards.

There are certainly some who are expecting demand to increase in the second half of the year due to reduced inventories in the retail sector. Others are sceptical because political decisions can significantly change price structures. For us, China remains they key to further development in the leather business. Without Chinese production and rising consumption, it will be difficult to expect a trend reversal. However, the good news remains that Chinese consumers do not have the same fundamental problem with regard to the perception of leather as a material that consumers in western markets have.

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