After the lockdowns of the first and second quarters of the year, everything had begun to return to normal. By the beginning of September the economic recovery in China looked like a trendsetter and a trigger for the rest of the world. Tanners and manufacturers began to see demand rising and planned accordingly. The rules had been applied, infection numbers were reasonable and a very strong opti-mism about the recovery and a return to almost normality was felt all over. This continued at least until the end of September before it became obvious that things would become challenging again, at least in the northern hemisphere.

Infection numbers began to rise from mid-October onwards and have reached levels now that suggest real worst-case scenarios for December. So far this has not yet really hit leather production. The main driver for this is the strong performance of the Chinese economy. Consumer spending in China is al-ready back to pre-crisis levels and industrial production has recovered almost completely. The Chinese economy is growing again and even those who are a bit sceptical about the value of statistical data in China can see this.

The standstill of a large part of the leather production in the second quarter led to record low prices for raw material. Many producers who were holding stocks were willingly clearing them at prices well be-low production and processing cost. As a consequence, the destruction of raw material became pretty common for low-value products. Slaughter in many regions also declined substantially. Lower supply and improving demand lifted raw material prices and created a general sentiment of enthusiasm around the beef industry and hide sellers in general. Well, any kind of warning that this could just be a tempo-rary rebound did not find many open ears. We are not saying this to play the role of the continuously depressed pessimist. It is more a question of trying to be as realistic as possible and to bring to every-one’s attention the fact that our industry, from the very beginning at the slaughterhouse to retail and consumer business at the end, must have a single interest: to keep leather in play and to secure the product-flow from raw material to finished goods.

The rebound we see at the moment is to a great extent based on industries like the automotive industry, which have long cycles with the use of leather not changing from one season to the next. We still be-lieve that at least in the western world we are at the beginning of a reduction of leather consumption in automotive manufacturing. It will not disappear, but it will decline, because it’s increasingly being sub-stituted for many different reasons. This is a slow process and it might take years, but everyone should be reminded of what we have experienced in the shoe industry. For the moment we are in the phase of ramping up and replenishing the pipeline. In view of the pandemic and the experience many automotive manufacturers who suffered disrupted supply chains, a certain amount of inventory crea-tion to protect against supply problems is also reflected in the increased level of production and de-mand. We do not believe that this is a sustained trend. The number of vehicles being produced has reached pre-crisis levels, but no more than that, and the penetration of leather has not increased either. 

We see a similar situation in the upholstery sector. Leather furniture is definitely seeing a renaissance in many markets. This is the result of the very cheap leather prices on offer in the summer, which tempted many manufacturers into trying leather in their collections again. Most of the dynamic is from Chinese consumption and manufacturing and seems to be rather price sensitive. If the good performance of upholstery leather is a consequence of cheap prices the revival will be over as soon as the season ends next spring.

In shoes and leathergoods there is no big change in the demand for leather as a material. 

The availability of raw material is down, congested stocks of raw material for upholstery and automo-tive have been reduced and product-flow in these sectors seems to have brought supply and demand back into balance. Hides that can only be used for side leathers are still struggling,  depending on the origin and quality. As soon as we face slowdowns on the demand side and production cuts because of the pandemic or the holidays, the upward dynamic from seasonal demand can quickly slow. Initial resistance is already being felt all over. 

In a situation like this it would be wise for all parties not to try to force a change in prices either way. Managing a period of exceptional challenges means there is a need for a calm attitude.

What else has happened? Another blink of what can happen was delivered by the situation in China where for a week no new import licences for German hides were granted. A general warning published on the internet about one case of bluetongue disease in the south-west of Germany quickly forced lo-cal import offices to stop issuing import licences for German hides. For a week, suddenly, one origin was cut out of the main market for hides. Although there are solutions for everything in this world, it demonstrated to shippers how quickly business conditions can change with a piece of news out of the blue. Fortunately the Chinese authorities acted reasonably and those responsible in Beijing did not issue any instructions to ban German hides and new import licences were granted after a week of fear and confusion.

There is no major news from the split market. Producers of collagen and gelatine, in particular in Europe, must once again plan for a potential interruption to the supply of lime splits because of new covid-19 lockdowns. Nobody knows if and when this is going to happen, but something like a plan B has to be in the drawer; anything can happen from one day to the next. Some supply chains can be interrupted, but food is something that will be needed every day.

Buyers in Pakistan and India still seek to buy large quantities of sheep and goat skins at giveaway prices, but leather is back in fashion, which means it’s not so easy for them to do this. It’s true that this has not yet reached the volume brands but when they sense that this could be a trend they will definite-ly jump on the bandwagon. Maybe it’s wishful thinking, but we understand that already some origins report better sales and demand at low prices. It always starts this way; price is the trigger. We remain moderately optimistic that in 2021 the situation for sheep and lamb skins will improve and if we are lucky prices that make the processing of the skins economically viable again can be achieved. It does not really need much for that to happen.

The coming two weeks will certainly give some indications. The result of the US presidential election will be known and the immediate reaction to it as well. The lockdown in Europe will be in full swing as well. We all have experience from April and May, but what this will mean in the season of high production and consumption in the pre-Christmas weeks is still unknown. We are all operating in un-known territory. Risk prevention and careful planning will be advisable.