The Leather Pipeline - 05.03.19
05/03/2019
In the past two weeks the main headlines in politics focused on the situation in Venezuela, conflict between India and Pakistan, the summit between the leaders of the US and North Korea in Hanoi and the never-ending story of Brexit.
The situation in Venezuela is becoming an issue for the oil market, so a local dispute, which should be handled by the citizens of the nation, is becoming a geopolitical issue, with Russia and possibly China on one side and the United States on the other. The situation between these powers is becoming more complicated every. Considering that Venezuela is the country with the largest oil reserves around the globe, one can understand how important the influence of this country is going to be.
Even with the two parties playing down the tension, we have to realise that the conflict between India and Pakistan over disputed territory in Kashmir is not just a footnote. Both countries are nuclear powers and emotions can quickly run high. It would not be the first time that just a little spark suddenly triggers a major conflict.
The meeting between Mr Trump and Mr Kim in Vietnam ended suddenly and with no real results. Both leaders and their delegations seemed to figure out quickly that their ideas are still far apart and that this did not leave any room for good PR to help the positions of both leaders at home.
Brexit is getting closer; there is less than a month to go. It is difficult to find anyone today who really understands what the different positions are and how they can ever be converted into political or economic sense. We have hardly ever seen a situation in which none of the options will do any good. Despite all the different opinions it looks like the only workable option at the moment would be to extend the expiry date, just to gain time.
The financial markets have remained unmoved by what is happening around the globe. Stock markets continue to trade in very narrow ranges, the US dollar has made no major move out of the narrow ranges since last November and precious metals and other investments of interest remain glued to the tight ranges we have seen for a while.
There is some better hope for an agreement on the trade dispute between China and the United States. China has published some positive economic data, which quickly boosted share prices in the mainland. The oil price has also settled down after the pretty sharp rise since the beginning of January.
The future is unclear and unstable, which makes management and budget decisions extremely complicated.
Market Intelligence
Despite the bad business situation in general, people went to Milan for Lineapelle and Tanning Tech (February 20-22) with high expectations. If the number of visitors one sees at events like these mean little for real business, it is worth mentioning that these shows have not become any smaller; in fact, we saw a lot of new exhibitors that did not have stands before. They were mainly specialists and manufacturers of niche products. When we go through our notes and recall what we were told in Milan, it all followed a trend we have been seeing for almost two years.
Away from the commodity consumer business, leather remains in good demand and is still attracting a lot of attention. People like beautiful things and leather that is well made, in keeping with professional manufacturing standards, remains something of beauty; it pleases the senses.
This only confirms the gulf that exists between leather as a specialty product and leather as a commodity material. Volume producers are killing the beast. It is not only about the raw materials they require, the manufacturing processes they use, or the manufacturing costs they seek to reduce, it is also about the complications they are creating in regard to animal welfare, sustainability and traceability. We don’t need to go through all these subjects again. In the western world, large consumer brands have taken a path that will make leather consumption in volume increasingly complicated. If something is complicated, it’s difficult to do. This will probably push costs up and this, in turn, will make the product even less attractive as a commodity.
All the certifications and guarantees in the world will not offer protection against the ideological war many of the organisations have started and as long as we are unable to clarify to the public that we are dealing with a by-product that becomes available when people consume meat we will lose the battle, no matter what kind of paperwork and administration we create. Brands, automotive companies and large retailers will not support us; they will seek to escape from any potential risk to their image. There is nothing more to add to this story.
At Lineapelle, we could not trace any real trend trends in fashion and articles. There was no new real mainstream such as nubuck, patents or prints to be seen. Maybe, generally, vegtan or combinations that can use this phrase are having a good response and attracting more attention than the standard chrome leathers.
From talks on the stands we were left with a bag of mixed results, but still reflecting what we have known for a while. Firstly, it is a supply chain issue. Tanners with links to strong and leather friendly clients were quite happy. The lower raw material prices have allowed price reductions for leather for the coming season and this has helped sales. In some cases tanners even reported that customers where thinking of shifting back to leather for some products in which they have used substitute materials in previous seasons.
These tanners generally produce a quality product, address environmental concerns and are able to offer leather with special technical specifications to help them stand out from their competitors. Others who were able to offer good news were all the specialty operators, small tanners, high street fashion producers, niche producers, specialty leather makers, exotic material users and so on. All of them have their problems and they all complain in the usual way, but none of them was complaining about what we are discussing around leather at the moment or about a lack of orders. Their main concern is rather to get the raw material they need, to remain supported by the chemical industry, and not to be put off by all the bureaucracy that is burdening them.
The feeling among the smaller tanners was underlined by the large number of small designers, owners and leathergoods manufacturers who were seen in and around the show. Sure, no big volume and a lot of requests, but still the confirmation that leather remains an attractive material to work with.
It appears our assumption is true that, at the moment, not all hides presently produced as a by-product are needed or being used in the leather industry. It seem that this might possibly still last for a while. For raw hides produced in abattoirs today the quick solutions are still rendering, landfill and so on. Lots of hides that are already tanned are sitting in warehouses as wet blue or wet white, crust of finished leather. This material might be stored safely for a longer period of time, but one day, mainly for wet blue and wet white material solutions have to be found.
A year ago we visited warehouses in China where impressive volumes of low grade material in wet blue could be seen, seriously affected by mould. Such material could eventually become a serious problem too. To get rid of it or to destroy it is neither easy nor cheap and if the numbers grow bigger it could become a serious problem eventually. To this day, the conviction dominates that every hide will end up as leather one day, but this could be an error. Technically there are plenty of solutions for shavings and trimmings already, but we fail to see how this could be commercially turned into a success, unless such material came to be considered as a recycling product, which could mean greater acceptance for leather itself for the same reason, which would, in turn, solve the problem.
As far as general business in the leather pipeline is concerned, one has to be a bit disappointed. Raw material buyers have insisted on further discounts or say they prefer to wait. In Asia the big names are awaiting to see their suppliers from around the globe in the build-up the APLF (March 13-15). Generally they feel quite safe in their assertion that there is no shortage of raw material and bargains can be made with those who need to move product on a constant basis. Maybe they are right considering that spring is close and the leather pipeline will soon shift into the slower summer gear.
The split market cannot escape from the ongoing situation in which the number of splits produced struggles to find a home in leather production. Niches do well, the decline of soaks has here and there caused supply issues in the collagen production, but none of this is changing anything in the general market.
In the skins market we are dealing with the same situation. General nappa garment leather has no market. Fashion footwear producers are not willing to give leather a chance again in linings, so only the niches remain. The good news is that most of these niches are having a good time at the moment and, with the relatively cheap prices, many of them are very profitable at the moment.
We believe that the next weeks will be quiet. Many will be travelling in Asia and will keep their findings to themselves. The show in Hong Kong will definitely reveal a lot of secrets and should then also offer us a direction for the second quarter of the year, but it will certainly not resolve the fundamental problems we have been dealing with now for some time.
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