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Leatherbiz Market Intelligence executive summary: • • • • • • • •
US–EU trade tensions persist amid political uncertainty Consumer confidence is weak in the US and Europe The confusion around the EU Deforestation Regulation is creating a major strain on leather industry European leather producers still face high costs and collapsing demand The shift toward protein use for hides is increasing Asian leather markets remain stable but highly price-competitive Split demand is steady; fine-wool sheepskin prices are rising Holiday and shipping disruptions are expected to worsen supply issues
MARKET INTELLIGENCE
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eopolitics continues to play a decisive role in developments along the leather pipeline. US trade policy is increasingly focused on relations in Asia, while relations with Europe continue to cool in many respects. Even if tariffs between the EU and the US are not currently in the news, trade relations remain complicated and difficult, particularly for those European exporters that have to maintain a significant market presence in the US. Not every company can comply with the wish of the US president and establish production facilities there. The main problem, however, remains uncertainty in planning, which not only concerns tariff decisions but also the general political situation in the US. The shutdown of US government agencies in September has a direct impact on consumption. Significantly deteriorated consumer sentiment published in early November can only be seen as an indication of this. In Europe, consumer sentiment is likewise heavily strained. On the one hand, the danger of war remains high and continues to weigh on consumer confidence. Leathergoods are not part of people’s basic needs, and therefore weak consumer sentiment has an exponentially strong impact on the leather supply chain. Increasingly, fears about job security and concerns about the financial stability of government budgets within the EU are having additional negative effects. Although employee representatives everywhere continue to try to defend their interests, many have now realised that in the end, only what has first been earned can be distributed. The reflexive call for higher taxes on the wealthy and the deeply rooted expectation that the state will ultimately be available as a guaranteed source of income still largely shape public opinion. On the political front, the European Union
Deforestation Regulation remains a major problem for the European leather supply chain. Its origins go back several years, and anyone who looks back honestly will remember that at that time, anything even remotely connected to climate policy was regarded by companies as untouchable. There was no courage to confront policy coming from Brussels with clarity and firmness. The geopolitical situation is now entirely different. The political entanglement has become so deep that it will be extremely difficult, even with great creativity, to find a way out. For now, we must wait for the European Parliament’s decision on the latest proposal, to impose EUDR on large companies from the end of December 2025, to know in which direction this issue will develop. Basically, more than two years have already passed since the law came into force, which legally creates a situation in which the EU regulation could be completely renegotiated or even abolished. Politicians should do that first, and only then discuss possible new ideas and solutions. The EU regulation is not only poorly designed; it also completely ignores international developments and the current political reality. Public mainstream opinion was considered more important than the clear difficulties that exist in implementing the regulation. For the European leather industry, this means that considerable company resources have been wasted, and more importantly, that investments and developments have had to be postponed owing to planning uncertainty. And all this while production costs in Europe have risen faster than ever before. The result today is massively worsened and more expensive production conditions, now faced with a significant decline in consumption that also goes hand in hand with falling prices. Rising costs, declining revenues, and planning uncertainty: it can hardly get much worse. Unfortunately, that is the situation in which
almost the entire European leather industry currently finds itself. A few exceptions can be gladly acknowledged, but they do not change the overall situation. With the massive decline in leather demand for European producers and the simultaneous rise in demand for proteins, new trade-flows have emerged. But with falling leather production, considerably fewer by-products are now available for various protein uses. As this market is clearly growing, efforts are being made with increasing intensity to compensate for this gap. More tanneries are now being used primarily for the first stage of production, while the further stages – up to finished leather – remain significantly underutilised. Naturally, this is completely unsatisfactory in terms of the value-creation a tannery must achieve. The questions that are now being discussed more intensely from day to day revolve primarily around the fact that the use of cattle hides in the protein sector is just as affected by EUDR as leather production itself. It is still astonishing that many people, starting with slaughterhouses, are not aware of this. The number of those who see the protein sector as the solution for the utilisation of cattle hides has increased considerably, yet many are not aware of this fact. Once again, this raises a very simple business management question. In the end, for any product, it always comes down to what kind of value creation and revenue can be achieved. A cattle hide, however, is not a uniform material and offers a broad range of possible uses, quality and price levels. This applies especially to European hides, which, due to their quality, still offer higher revenue potential at the upper end of the market. However, this spectrum can only be reliably assessed after hair removal. Only then can one decide in which value chain the highest revenue is possible. More and more people are now dealing with this question and the variety of revenue options. The surprising part is that it is often not the leather manufacturers themselves who are looking for alternative revenue opportunities, but rather the processors and marketers of splits and other by-products from leather production. At present, many secrets still surround these new possibilities and alternatives. Some may have better knowledge of the revenue chains than others, but the information and expertise do not seem to be widely shared. Assuming that EUDR does not obstruct these developments, there are strong indications that we are currently in a destructive phase for the utilisation of cattle hides. This also means that many of the traditional industrial