The northern hemisphere is on holiday now, but people have had to change their attitudes and expectations. Although many tourist hotspots are open again, we understand that capacity is down and the masses cannot travel as they did before. So, people are spending holidays at home or at domestic destinations. Mobile homes and caravans are seeing record sales, and camping and short daytrips have become popular again.

Many countries in Europe also report a trend of residents moving back into the suburbs and countryside – something that just six months ago was an old-fashioned lifestyle for the grandparents. The young hipster had to be in town and even young families considered life downtown in dense communities with high rents as an essential part of their must-be and must-have plans. Life at home was not topping the agenda; families and single households were thrilled by this life and it seemed there was no alternative. Apartments were built, politicians were supporting the trend, and so prices for flats and houses (fired by low interest rates) went through the roof. Those affected were willing to pay more and more of their budgets for city life.

Covid-19 has started something new, but it is too early to call it a trend. More home office work requires less commuting and erases another motivation for city life. The lockdown has shown many people an alternative to the daily masochism of life in the city. Spending more time with the family, but not having a nice place to go or somewhere for the kids to play when schools and kindergartens are closed, have become issues of consideration. Spending more money for less space at an increased infection risk for this or the next pandemic have triggered many discussions around the kitchen table. Such trends occurred for different reasons several times in the past, and this may be the next one. As long as the urban lifestyle (restaurants, cinemas, theaters, shopping, etc.) is restricted, more such trends could evolve and quickly get stronger. In the world of online shopping and delivery anywhere, more focus on home instead of city life could evolve with all the consequences for consumption related to it.

Also in the past two weeks, covid-19 has dominated the world of politics and finance.

This has been not so much in the daily numbers, but in how it’s been reflected in politics and the markets. In politics governments and leaders know that their political survival is very much related to their performance and leadership during the crisis. Ignorance and tranquilising have so far not performed well; in most regions and countries, such approaches caused a lot of lives and damaged the popularity of the reigning authorities. Some have tried to mildly change their positions, others see their leadership image damaged and choose to stick to the hardline.

Covid-19 infections are still rising in many parts of the world. Even in countries where it seemed well under control cases have begun to rise and the travel season might stimulate the trend. Unfortunately, there is news that even an infection does not offer long term immunisation.

The financial markets have decoupled from the situation for a long time now, leaving many experts scratching their heads – in particular as even tech stocks have reached bizarre levels. Just last Friday the markets corrected a little and we all know that, despite all the sayings about the stock market, summer can always be tricky. The concern about the continuous and ongoing conflicts between China and the United States, the presidential elections in the USA and a more rational evaluation about the outlook for the economy are beginning to scare a rising number of investors.

If gold is still an indicator for rising investment risks and the classical defence tool against hurricanes on the financial markets, we should get well prepared. Gold’s price per ounce has for the first time crossed the $1900 mark. Some forecasters, who anticipated the bouillon passing $2000, are getting closer to the prediction.

With the problems to control covid-19, the grim outlook for the American economy and the conflict between China and America, the US dollar has taken a fair beating. It has now lost almost 7% to the Euro over the past month. The final hit the greenback got when the EU agreed, after long argument negotiations, for a stimulus package of almost €2 trillion. This was seen by the markets as an example that the European community is still able to get to agreements and to speak with one voice. This has cost the US dollar a good part of its safe haven image. Anyway, this is definitely not the end and one has to be ready for any news every day.

Market Intelligence

This edition of Market Intelligence, and probably the following editions, will be the shortened holiday issues. Unless something of real importance happens or any distinctive activity along the pipeline can be traced, there will most likely not be much to report in the month of August.

The situation in the past two weeks continues to be a reflection of the previous weeks. In Europe the leather pipeline remains exceptionally cautious. If it’s truly a lack of trust and confidence or the simple relaxed routine before the holidays remains unclear. As far as the tanning industry is concerned, one can definitely say that the tanners are not rushing to secure raw material, because they are of the – most likely correct – impression that the raw material they need is readily and quickly available. So why make plans or actually buy ahead?

This is creating some congestion for the hide types that dominate the European tanning industry. This applies primarily to heavy male hides, but some European suppliers have also been happy to serve Italian tanners with fresh, chilled dairy cow hides too; those have had to look for a new home for several weeks now. In previous years many suppliers were willing and happy to either contract the material or to salt it down, knowing that – at whatever price – Italian tanners would buy extra after the summer vacation. This is not so much the case in 2020. A number of producers and suppliers have been digging into their files to find the contacts in Asia that they sold to once upon a time.

It has become clear that Chinese upholstery tanners were calculating their inventories and thinking about the business potentials in the winter half. Traditionally the upholstery season begins in October and finishes in April; that is more or less the same all over the world. But Chinese tanners, depending on foreign raw material supply, have to act a little earlier to get the shipments that today take several weeks longer than they did previously. The good news in this respect was that many Chinese buyers, mainly from Hebei province, did not have totally negative expectations for the rest of the year. If this is only related to domestic demand or includes also international orders remains somewhat unclear.

Demand for standard dairy cows has been quite reasonable in the past weeks. With the reduced slaughter in Europe, a certain volume could be placed, lifting a bit of the pressure that was overhanging the market for such a long time. However, whoever was hoping or believing this could be converted into higher prices must have been disappointed. The Chinese buyers continue to be as price sensitive as they have always been and there has been no mercy or interest in accepting any kind of a price increase. For the European suppliers the situation was even worse, because the US dollar has lost a lot of its strength; compared with about a month ago, the currency lost about 7% of its value. With tight margins and massively rising transportation problems and cost, every single percent counts these days.

Traditionally, the US market for upholstery leathers from China plays a very important role. Nobody has a clue how the American economy is going to adjust to the covid-19 problem. Unemployment and the upcoming presidential elections could keep the consumer away from spending. The sudden return of serious tensions between the US and China ending in the closure of consulates in either country must be worrying too. With the unpredictable reactions of the political leaders these days, nobody has any idea if tensions are going to intensify or if the next step will be a quick appeasement. The world of politics has become more and more a world of big surprises.

Political tensions can also have a direct influence on international trade. Many may have already forgotten how quickly sanctions can be implemented and what kind of strong impact they have on trade and marketing.

However, as already mentioned many times in this publication, the fundamental problem of the industry remains the use of leather as a material. We would not be bothered a single minute about consumption and use of raw hides and leather if we could see the consumer appreciating leather as a sustainable and quality product again. We still see a lot of opportunities if the cards are played well. But we also see the continuing general trend against leather and the substitution by plastic – even as manufacturer brands are trying to market plastic as recycling content. Plastic is plastic and will never be anything different.

One of the latest examples has been the Swiss sport shoe company ‘ON’. Tennis Star Roger Federer is promoting the products, has given his name for a special shoe, has bought a stake in the company, and is allowing the company to market their shoes as ‘vegan leather’. It would be interesting to know in what kind of shoes he started his own career. Everybody knows that all the top football players get paid bizarre amounts of money allowing commodity soccer boots to be named after them and at the same time playing mostly in top-quality, super-performing, highly-comfortable kangaroo shoes.

Anyway, slowly but surely also our industry is beginning to become more active. If only we could take the next step to discuss the subject on even levels with the large organisations we face as natural enemies on the other side of the fence. Their budgets are certainly much higher and they use them. However, our arguments are better and we should use them as well.

In the automotive industry we learn that more and more production lines are beginning to run again. Many problems within the entire supply chain of components had to be sorted out, but we are slowly getting the impression that the number of vehicles the brands want to build can be produced. After the summer break we would not be surprised to see factories return to decent levels possibly in the 80+ % range. The boom for E mobility (electro mobility) continues, though it’s unfortunate that leather as a material hasn’t made good inroads with these models.

At the same time it might be possible that more people return to individual mobility and spend more time in their cars. This can mean more traffic jams and Internet connectivity and comfort will see rising importance. A well made leather seat – and the focus is on ‘well made’ and using comfortable leather – could be a very strong argument.

Despite a lot of positive expectations, we remain concerned about the shoe and bag leather industry. There’s a need to better demonstrate the use for shoes and leather accessories including bags. For shoes, one can still find quite a number of interesting and valuable sectors that could compensate in part for the loss in dress shoes. However, we find it harder and harder to believe in the short term future of a successful luxury and handbag market. Fashion is something that needs to be shown, fashion often is about trying to attract somebody else. With less public life, fewer public events, fewer public gatherings and less travel, it will be difficult to excite consumers to purchase at the same rate and to the same extent they have done before.

An opportunity and growth can definitely still be seen in so-called ‘tech-leathers’. Tablet sleeves, mobile phone bags and covers, covers for earphone boxes and other accessories are a great option for leather. They are touched so many times a day and the leather made for this purpose is getting better, and it is much more pleasant in its use than any kind of plastic alternatives. We see this market segment growing and hope that this can be further extended also in the future. Leather performing in these extremely important consumer products would also have very positive side effects on other products too.

The split market continues to be in the doldrums and we once again have little to report. In the leather segment there is some interest and volume for suedes and other specialty products in the vegetable tanning section. For the classical PU coated split the situation remains exceptionally difficult. Gelatine and collagen continue to be in an up-and-down situation, and there are many situations primarily affecting the supply side. Pork is also a big factor; there are many reasons its production globally is not matching expected budgets. In some cases pork has to be replaced and this could and would be done by products of bovine origin. We fail to see real stability, but at least some options have made it possible to redirect cattle hides into new production lines.

The skin market is a reflection of the hide market, so nothing has really changed. Specialty items continue to find a home and, where supplies are naturally limited, buyers have to pay adequate levels. For the commodity types the number of skins going into destruction continues to rise. It’s an absolute catastrophe.

In the coming weeks the focus of attention has to be Asia. From next week onwards, with the exception of contract tanners, the leather industry in Europe is on holidays. Maintenance work on some R&D will continue, but that’s it until at least mid-August. However Asia, under the lead of China, will give us direction. If the Chinese tanners continue to fill their pipelines with cheap raw material, it has to be considered as an indicator for rising optimism. China bought cheap oil and China bought cheap metals and other commodities. Consequently, they have a strong competitive advantage on pricing if the demand is there. We will keep on monitoring the situation and wish all our readers were going to take a few weeks of nice and relaxing holidays.

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