Leather Pipeline - 03.09.19
03/09/2019
We have to assume that all readers will be following the news more closely than ever because everything has become exciting in the world of politics. One has to be impressed that, with the chaos we are experiencing almost every day, the financial markets and the global economy have not been hit harder than they have so far.
Consequently we can only remind everyone of what is going on around the globe so far. Protests in Hong Kong and nobody knows how the government in Beijing is going to deal with the demands of the protesters for greater freedom. The conflict in Kashmir is far from being resolved, even if it’s not front-page news any more.
The G7 summit in France had a surprise visit from the Iranian foreign minister. Nothing very constructive has been reported from there, but in today’s world you have to be happy when no real new conflicts are created.
The summit was overshadowed by the fires in the Amazon rainforest, which have triggered once again discussions about climate change. From apocalypse to ignorance, everything can be found. The majority of global population is definitely concerned, if not alarmed, while several political leaders don’t care much at this moment. In Russia a nuclear accident has been played down, Mr Trump has proposed purchasing Greenland to gain access to natural resources and is reported to be contemplating deforestation in Alaska.
Meantime, Italy has a new government, for as long it lasts, and Mr Johnson in the UK continues his Brexit ego trip at whatever cost.
The financial markets continue their rollercoaster ride, which is mostly connected to the latest news from the trade war between China and the US. A twitter message from Mr Trump sends the markets down and a softener from either side pushes them up again.
Considering that most pundits are expecting a slowdown in the global economy, the financial markets continue to be well supported by cheap money, which is being used as an indirect tax to support and help nations with a serious budget deficit. The intentions might be good, but the journey towards unknown economic territory continues. What we shall find at the end of the journey, nobody knows.
Precious metals are not able to extend their gains and for the moment they are not considered to be the safe-haven investment. However, with a great uncertainties and numerous tensions this can change from one day to the next.
The oil price is also continuing in a very small price range. Trouble in the Persian Gulf region is compensated by the expected slowdown of the economy and the expectation for shrinking demand. So far investors have not decided which way they believe things are going to go.
Market Intelligence
The tanning industry has begun to return from its summer vacation and most productions have already restarted or will finally open their doors this week.
It does not seem that anyone has returned from the vacation with more insight or knowledge versus when they left. This is neither unusual nor surprising, because the summer seldom brings any real news from the leather pipeline that could change the business. Tanners from Asia, who usually are more active during the summer period because they need to replenish their inventories earlier than the just-in-time productions in Europe, were pretty quiet throughout the month of August. The big-volume deals had been done already, mainly in the US in June and July. Without any additional leather orders, we have to consider that most of the active tanners are now well covered for raw material and their number-one aim now is to obtain leather orders that will allow them to use the better-quality summer hides.
In Europe we could only trace a little isolated purchasing activity. This came mainly from automotive tanners, who reduced their inventory to a pretty large extent before the summer break and need now to replenish their stocks, mainly for the better-quality selections. This is a pretty difficult task because the good hides always come with some bad ones.
In addition to these industrial players, most raw material suppliers talk about interest from specialty tanners as well. The range of specialties is wide, from top-class upholstery and specialist veg tan products, to high-fashion and high-tech, almost everything is quoted.
This week we have the All China Leather Exhibition in Shanghai. The number of people travelling there is certainly shrinking from year to year. It is becoming more and more a local Chinese event and the proportion of non-leather components and products at the exhibition continues to rise every year. However, being the first international event after the Hong Kong show in March, many see it still as a good opportunity to meet people and a chance to obtain some market information.
The time when many people stayed all three days and used the trip for an extensive tour to visit customers is definitely history. The big players with strong customer ties still do it and have to do it, but smaller units with no fixed customer base in the region cannot really hope to conquer new markets and win many new customers. With the present problematic times, the leather industry is not really looking for new adventures. We have to admit that this is not the best decision. Hides and skins are cheap, no matter where they come from, and it is definitely the best chance ever to explore and test new origins and articles with the lowest-risk ever. Anyway, this is not new; when hide and skin prices are sky-high the industry is ready to take risks with new and unknown suppliers and origins just in the hope that there is still some hidden treasure to be found. This usually ends in big disappointment and can be costly.
The biggest problem is, however, that in the industry almost all hope and optimism have vanished. Tanners are happy when they still have reasonable orders from their regular customers and do not really see any reason why they should hope for a better time ahead. With a few exceptions, one has the feeling that, week by week, more people are surrendering and will continue just to be happy if they can defend their present situation without things getting any worse.
This is obviously also the consequence of the ignorance of large consumer brands, who have traditionally been the biggest users of leather as a material. Many of them have eliminated leather or reduced it to a minimum. Today, you still hear people quietly admit that they either see more potential and growth in the vegan trend or plan to reduce leather content just for reasons of flexibility and production cost.
We continue in the same vicious circle. Vegan and sustainability have really become the strongest arms today in product marketing. Very few people really know what they are buying and even fewer really care. If it is called sustainable, then it’s good. Companies that are in the fast fashion business, preferring artificial and petrol-based materials simply for cost and price reasons, have become suddenly sustainable when they collect and recycle a fraction of what they created previously. You just join a nice group with similar interests, create a nice logo connected to dubious certifications and with a click of the fingers you become a protector of the planet and champion against climate change. Once upon a time, such strategies were called self-fulfilling prophecies, but we have to be fair: it is smart and successful, even when it’s not correct. The leather industry has to blame itself for not having a smart response ready and for failing to understand in time what their clients were intended to do. Now we can only work hard and hope that, as things change quickly sometimes, things will improve for the material that really is everything the other materials pretend to be.
With all this going on, it is even more depressing when you see videos from some Muslim countries where hides and skins, a natural by-product of the Eid al-Adha slaughter, are just left in streets and backyards because nobody is willing to collect them. A big number of hides and skins were left outside and will now just rot and become, at best, fertiliser. This is a shame in a corporate world that has declared sustainability as its new icon; it raises questions about whether any of these hundreds of well intentioned organisations realises what is happening these days.
The split market is also entering a new phase. African Swine Fever is changing the balance in animal proteins considerably. Beef imports into China are booming as the swine population continues to decrease; and the epidemic has not stopped. Less pig skin is becoming available for gelatine production, prices are sharply rising and bovine splits are becoming increasingly competitive again. So far this has not yet been reflected in big changes in price, but in many parts of the world the direction is set for a steep increase. Theoretically, any potential gap in supply could quickly be compensated because bovine hides are stuck everywhere. Practically, there are lot of traps and obstacles that make exchange and substitution much more inelastic than one would think. However, price remains the driver and we tend to believe that we are going to see more collagen and gelatine producers shifting towards bovine raw materials again, if not for price then for security of supply.
The skins market had very little news to offer, with the only exception that it was hard hit by the large volume of skins that became available as a result of the Eid al-Adha festival. However, in this market the situation has been bad for a while and in many parts of the world the destruction of sheepskin is now common. The trade war is hitting this business as well, affecting skins and wool, which are often part of the same calculation. A number of times already the sheepskin market has tried to trigger a recovery but the greater the effort the bigger the failure in the end. Leather garments have become a bit more common in high street fashion again, but seeing this reflected in the mass markets remains unlikely.
The next two weeks will be dominated by news from the show in Shanghai. We think it’s too early, because the real decisions and trends are set at the consumer product fairs, which are going to take place late in September and October. The role even these exhibitions have today is significant smaller than before. Designers and product managers are taking their own independent decisions and hardly anyone in the mass markets is willing to do anything against the mainstream trend. Just watch what people are wearing today; it is actually all the same. Maybe the brand is different, but designs and styles are interchangeable and so are the materials. It remains unlikely that one of the big brands is really tough enough to have the courage to swim against the mainstream and to do something that the others won’t.
Under these circumstances we do not expect any big changes until mid-October.
We still continue to stick to our hope that the time seems right for a change. Things have stayed the same for too long and as much as people try to justify their material strategies, it cannot be long before even commentators in the mass media realise that something is completely wrong. There is no excuse for destroying a natural resource that is nothing other than a by-product. There is no excuse for using more plastic than is necessary and there is no excuse for failing to use material that can have a significantly longer lifecycle and save many resources.
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