Hide tanners fear disruption of leather orders due to production slowdowns in the automotive industry

As supply crisis hits major automakers following geopolitical tensions in Eastern Europe, demand for leather may be negatively affected

Auto production in Eastern Europe is under pressure due to geopolitical tensions and supply chain issues. Several major automakers, including Toyota, Volkswagen, and BMW, have cut production in multiple locations. Ukraine has been an integral supplier of auto parts to manufacturers and after Russian forces invaded the country at the end of February, operations were placed on hold leaving several automakers with supply shortages.

Toyota halted production and sales to Russia partly because of a shortage of auto parts originating in Ukraine. The St. Petersburg plant manufacturers roughly 80,000 vehicles per year including their popular Camry and RAV4 models. Additionally, Toyota production in Japan was down on Tuesday due to a cyber attack that recently occurred at auto supplier, Kojima Industries.

Volkswagen put production on hold at two of their German manufacturing plants due to the delay of auto parts from Ukraine.

A US hide seller reported that complications at the Wolfsburg plant may result in a temporary shutdown in the near-term. Also, in the beginning of March, the automaker lost 4,000 luxury cars off a cargo ship in Portugal. The ship caught fire and sunk due to structural problems, resulting in a loss of $155 million.

Production at the BMW plant in Kaliningrad in Russia has also been halted and other production points have stopped exports to Russia. The supplier closures in Ukraine for BMW are expected to impact production, according to the automaker’s spokesman.

Despite the recent uptick in leather orders intended for automobiles as semiconductor chip inventory increased, hide tanners are concerned that further production slowdowns will disrupt the inflow of leather orders. A hide tanner from the automobile upholstery industry stated “At this point, there has not been a drop in demand for hides. However, we are aware this conflict will impact European automakers due to the lacking supply from Ukraine. We are also preparing for price inflation of chemicals and parts from the EU.” As sanctions continue, rising costs and shortages of shipping, energy and raw materials are expected.

Average prices for light weight Heavy Native Steers increased 4 percent from 6 months prior driven by the growing demand for automobile leather since supply chain issues eased, but negative price risk is building in the market on the disruption to the automotive industry.

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