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Leatherbiz Market Intelligence executive summary: • •
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Ongoing geopolitical tensions are resulting in higher transportation costs, longer lead times and significantly reduced planning reliability The near-total lack of visibility and planning reliability has led many market participants to postpone decisions and focus solely on what is absolutely necessary in the short term In plain terms: there is a near-complete paralysis in the market For an industry such as leather that is characterised by long supply chains, this represents a substantial and additional risk There is a risk that decisions affecting entire seasons will be made too late Rising production costs for leather continue to erode margins It is increasingly evident on a global scale that lower-grade hides, in particular, are being diverted away from traditional leather processing and used for alternative applications The industry is navigating a phase in which short-term volatility and long-term transformation are occurring simultaneously.
MARKET INTELLIGENCE
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month ago we wrote about the outbreak of a new conflict in the Middle East. It must be noted, quite soberly, that little has fundamentally changed in terms of our overall assessment. However, our hope at the time that this would be a short-lived escalation, with neither severe nor long-term consequences, has unfortunately not materialised. Although a ceasefire was officially announced, it has neither been consistently upheld nor has it led to any meaningful de-escalation. The Strait of Hormuz remains effectively constrained, tensions between Israel and Hezbollah persist, and between Iran, the US, and the Gulf States there is little indication of a stable or credible ceasefire or peaceful stability. Against this backdrop, the geopolitical environment remains volatile and difficult to interpret. Ongoing negotiations, including those that took place in Pakistan, have so far provided no clear indication of a sustainable resolution. Instead, there is a growing sense that political decisions are being made on a short-term basis, lacking predictability and not necessarily guided by a coherent strategic intent. Agreements are reached, yet their reliability remains questionable. For markets, this translates into continued uncertainty, which is directly reflected in elevated energy prices, constrained logistics capacity, and an overall fragile global supply situation. The impact on international shipping deserves particular attention. A significant portion of global capacity remains either
unavailable or only deployable at increased risk. The discussion around so-called ‘safe corridors’, subject to toll payments, highlights the absurdity of the current situation: free trade, historically based on open sea routes, would effectively be subject to controlled access; who exerts that control is not the point. For globally integrated industries such as leather, this results in higher transportation costs, longer lead times, and significantly reduced planning reliability. Market developments over the past few weeks clearly reflect this environment. Overall activity in the raw material segment has declined noticeably, while order intake across the leather industry has fallen well short of typical and expected volumes. The near-total lack of visibility and planning reliability has led many market participants to postpone decisions and focus solely on what is absolutely necessary in the very short term. In plain terms: a near-complete paralysis of the market. In an industry characterised by long and often inflexible supply chains, this represents a substantial and additional risk. The consequences of this hesitation extend far beyond the immediate situation. There is a real risk, one that applies not only to the leather sector, that decisions affecting entire seasons will be made too late. Production cycles that require long-term planning are disrupted, and delivery deadlines may no longer be met. The already observed disruptions in logistics further exacerbate this issue. One only needs to recall the stalled transport capacities around the Persian Gulf: vessels being offloaded in Africa, shipments
temporarily stored there, while elsewhere ships, containers, and goods remain stuck for weeks. In some cases, delays now exceed four weeks, timeframes that are extremely difficult, if not impossible, to compensate for in seasonally driven markets. Against this backdrop, the mildly positive sentiment with which we concluded our last edition must now be reassessed. The expectation of a short-term stabilisation has not materialised, and current market signals point more toward continued uncertainty than recovery. Within this macroeconomic and geopolitical context, the question arises as to how global consumption, and the leather industry and its various segments in particular, are being affected. Over recent years, the industry has already undergone significant structural changes ranging from increasing polarisation between mass and luxury segments, to the growing relevance of alternative materials, shifting regional demand patterns and an intensified focus on sustainability and transparency. The current situation acts as an accelerator of these trends. One of the key drivers remains the cost structure across the entire value chain. Rising energy prices directly impact production, particularly in energy-intensive processes within leather manufacturing. At the same time, costs for chemical inputs, logistics, and financing continue to increase. This cost pressure coincides with weak demand, especially in the mass market. Consumers are highly price-sensitive, increasingly shifting toward cheaper alternatives or postponing purchasing decisions altogether. All prices will most likely need to rise as a consequence of higher cost for everyone. Within this context, a development that has been mentioned before, but has now gained significant momentum, deserves particular attention. It is the alternative use of hides as a protein source. Contrary to common perception, this is no longer a phenomenon limited to Asia. Rather, it is increasingly evident on a global scale that lower-grade hides, in particular, are being diverted away from traditional leather processing and used for alternative applications. The underlying drivers are clearly economic. Persistently weak demand for mass-market leather has led to significant downward pressure on both finished leather and raw hide prices. In many cases, the achievable prices barely cover the costs of collection, preservation, and transportation. At the same time, food prices, particularly for protein, are rising. In such a context, the use of hides as a protein source or add-on becomes