Update of the leather industry

February 2021, By Arnaud Backbier

The world is trying to find answers to the various waves of the COVID-19 pandemic, for example, through the rollout of the vaccines. Everybody wants to know when we can transition to a form of normalcy where all aspects of social and economic life can be resumed. We must be aware though that this moment doesn’t necessarily coincide with the endpoint from an epidemiological point of view and can also vary from country to country. Also, the reports show us that corona-alike viruses are here to stay, more or less similar to common flu. The future will tell.

A return to normalcy is important for the economy, for the industries in which leather is used, and thus for the leather industry itself. Global trade numbers are showing that furniture upholstery almost outperformed 2019 or is on similar levels. Next is an automotive market which shows differences globally. In the automotive industry, and for leather goods and footwear, China has been a key area where the economy has rebounded faster and better. The rest of the world is still behind, and who knows how much damage the COVID-19 crisis has caused the consumers in so-called middle-income countries who were rising but have slipped back to much lower incomes. It will take some time for those families to return to the spendable incomes of before the spread of COVID-19.

We continue to see a footwear market that is lagging. The numbers vary per type of footwear, but we expect a recovery into Q2 of 2021 at the earliest. This depends, of course, firstly on the impact of the continuing waves of COVID-19 and the rollout of vaccines around the globe. Secondly, it’s about the funding availability throughout the footwear value chain, where cash will be needed to restart. The other value chains in which leather is used are recovering better or, as in the case of upholstery, doing very well.

What is daunting currently, is the demand for chemicals which are used by Smit & Zoon to make our products, caused by the sea transport mayhem towards and from Asia.

Prices for chemicals are rising for four main reasons. First, due to the strong economy in China. Secondly, due to the tentative economic recovery, the demand for chemicals is higher after inventories were brought down and chemical plants had a lower capacity. Thirdly, due to the low demand for fuel, refineries are running at a lower rate, which causes hiccups in the supply of petrochemicals. Finally, a natural-based product like leather is influenced by the variations of harvest results, and the fact that China is rebuilding its stock of pigs after years of African swine fever. This means there is a high demand for natural products at the moment.

We are also experiencing higher transport costs, especially on the Asian routes. The reasons vary and are more or less connected to the consequences of the pandemic. There is a shortage of empty containers, there are port congestions that ripple through the tight schedules, and crew management is complicated with all the COVID-19 restrictions. Also, the strong Chinese economy doesn’t help us here.