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AWI Market Intelligence report analyses Australian record wool prices

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Australian wool prices have hit $20/kg and AWI Market Intelligence report stated that this is a significant marker for the wool industry, The May issue says that this is a reflection of true demand in an open market. However, this did not happen overnight, to reach $20/kg the EMI has risen over $7/kg in two years.

 

One key driver in this market is the insatiable demand coming out of China that currently purchase 80% of our wool, half of which is consumed domestically. Although China have been our major consumer for some time now, fresh demand has underpinned this quick price rise which has allowed the price to continue to climb until resistance is met at a retail level. The growing appetite for Australian wool is exemplified by the increasing number of indent buying  that has occurred. A situation where processors are in such need of product they put in an order for immediate wool purchase and are prepared to pay market price for it, skipping the usual trading operation.

 

In episode 43 of “The Yarn”, Scott Carmody, recently returned from China shared the latest trade news and how the increasing price of wool is having an effect. He discovered that much of the trade talk was not about the climbing prices of wool but more on quality of wool and the supply levels that could be reached.

 

Although price was not the major business topic, he explained how increasing prices and demand have an impact on the landscape within the republic itself. Due to pricing pressure, many smaller processors have been swallowed up by larger operators, leaving around 6-8 major mills taking a majority of Australian wool. These big mills are now just as dependent on our wool supply as we are on their demand, it is a relationship which has been good for both parties.

 

As the season moves into what has traditionally been a quieter time of the selling schedule, international users are very aware of the supply constraints that usually occur around this time of year. Lower volumes of wool will make their way into the market here in Australia as winter sets in across the country, however compounding this tighter supply for processing mills is the other major source of Merino wool: South Africa, as it too will go into hibernation for two months very shortly. These sales are not scheduled to return until August, meaning Australia will be the only source for anyone interested in significant volumes of Merino wool over the next two months.

 

While the EMI moves through 2000c/kg, a significant milestone, it is important to remember that it is only a number and that our fibre still has much room for growth. Some very tough seasonal conditions will strain any supply increase over the next few months and China continues to compete within itself for our wool, so the short to medium term future looks bright.

 

As CEO Stuart McCullough said “Merino wool is made of the exact same material as cashmere, they are both keratin. Cashmere is overall a little finer but Merino wool is longer and stronger and at the ultra and superfine end, very close to the same softness. Cashmere is now a $100/kg fibre” and so relatively, Merino wool is looking great value for money. Merino wool is not a commodity like mass produced man-made fibres; it is a rare, natural and biodegradable fibre.

 

The steady rise in demand (and therefore price) from existing and new markets such as sportswear give weight to the theory that current prices can last for some time to come. The market right now is very different to the conditions that were prevalent in 2011 when the wool price spiked.

 

Much of the lift is attributed to the rising middle class of China and their increasing disposable income. According to a study by consulting firm McKinsey & Company, 76 percent of China’s urban population will be considered middle class by 2022.

Educating and inspiring this growing Chinese middle class to understand why Australian wool is versatile and fashionable and worth paying a premium for is what Woolmark/AWI does in this vital market. The Chinese consumer is a topic for another monthly market intelligence report.

 

Source:AWI

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