Wool market looking towards a fickle future

Is Australian Merino wool the latest casualty in the current trade war between China and Australia?


Wool
The relationship between China and Australia is concerning for the wool industry. But there are other factors that may have played a part into the recent price drop.

The relationship between China and Australia is concerning for the wool industry. But there are other factors that may have played a part into the recent price drop.

Aa

AWI CEO says he is concerned about the relationship between China and Australia and expects moving forward, the wool market to be fickle.

Aa

There is no doubt the trade relationship rift between China and the US is deepening.

But what’s less clear is whether Australia’s wool market is the latest casualty of the conflict. 

According to Australian Wool Innovation chief executive officer, Stuart McCullough, the relationship between China and Australia is concerning and moving forward, the market will be fickle. 

Before Mr McCullough’s whirlwind trip to China a few weeks back, where he met with some of the top wool processors in the country, Mr McCullough told Fairfax Agricultural Media that he wanted to get a ‘better read of the situation’.

He was referring to the wool market dropping by a dramatic 53 cents at the time to finish at 1970 cents per kilogram. It since dropped to 1781c/kg before stabilising last week at 1858c/kg. 

“The feedback I received at that point, was they (China) were out of the market,” Mr McCullough said. 

But he said that the problem may not be only isolated to China, with consumer confidence down globally. 

“Although not many countries are showing any obvious signs of recession, I think there is a drop in consumer confidence,” Mr McCullough said.  

“Consumer confidence affects retailers in Europe, America, which affects their ordering processes, and the next thing you know China is winding back. You have to be careful.”

He said AWI are conscious that the mood of the wool market is subdued at present. 

“Like all commodities there is an element of confidence that it trades on and we feel that the confidence is out of the market at the moment,” he said.  

At last week’s AWI annual general meeting Mr McCullough the feedback from some processors and retailers in China and Europe was that they were having difficulties with the high cost of wool. 

“We think that is taking an effect on our licensee sales as well - when the wool price goes up they try to take the cost out of packaging and labelling, branding of any sort,” he said.

“That is having an effect on our licensing numbers.”

But he warned China remained the largest buyer of Australia wool. 

“They are at the mercy of the administration there at any one time and we have to be very very careful about those relationships,” Mr McCullough said. 

In an article published in The Land October 25 Mr McCullough was quoted as saying the loss of China in the marketplace would be the wool industry’s biggest threat.

But previous AWI general manager and now CEO of International Wool Consulting Group, Jimmy Jackson, said although the trade war may weigh in on the loss of momentum in the market, it was the price lift that really caused the damage. 

“The price unfortunately just went up too high and reached a point where a lot of manufacturers had to look  at blends,” Mr Jackson said. 

“With some of the companies I work with, I don’t think we have developed a 100 per cent pure new wool fabric in the last year, certainly not for this season.

“What we have developed and presented have been blends.”

He said during the previous season, before the price of wool started it’s run of record prices, some manufacturers absorbed some of the increase, then passed it on. 

“With the wool we couldn’t pass on all the prices,” he said. 

“You reach the reach a point where it is just a bit too much, because the demand doesn’t change.

“But now we have a bigger problem with the supply because of drought and the quality is not quite as good.”

Mr Jackson also noted that the large scale of Chinese wool processing facilities had impacted the Australian market. 

“They were buying wool like it was going out of fashion because they simply wanted to keep the factories going,” Mr Jackson said.  

“It is not so much about the machinery, it’s about keeping the skilled staff, but it’s reached the limit for everybody.

“Such a big increase is not good for anybody. It’s good for those woolgrowers at the time, but it is not sustainable. 

“You end up with a big crush, and if you have a big crush you are going to see some of the manufacturers go out of business because they bought wool at a high price and then they have to sell it at a low price.” 

Aa

From the front page

Sponsored by