Wool growers concerned over China’s power crunch as processing slows

China’s power crunch is casting a shadow over Australia’s $2.5 billion wool market by slowing demand from mills which are unable to operate at full pace. The Australian dollar value of the Eastern Market Indicator, which benchmarks Australian wool prices, fell by 2.3 per cent last week to $13.37/kg, while the pass in rate was high at 22 per cent. China buys about 90 per cent of Australia’s wool. Power shortages were triggered by a combination of tight coal supplies, tougher emission standards and strong manufacturing demand, in turn leading to power rations. Downward pressure on the wool market is expected to continue while the issues linger. Australian Wool Innovation said China’s small to medium-sized enterprises have been hit hardest by reduced access, and most wool textile mills fit that category. AWI chief executive Stuart McCulloch said he was aware of at least one major mill reducing its production by up to 40 per cent. He said while some mills had good supplementary solar, and this was helpful while the sun was shining, there would be restrictions on some operations, such as night shifts. Digby Stretch, vice-president of the Pastoralists and Graziers Association and a Kojonup wool grower, said farmers were concerned. “It is another hurdle we have to overcome,” Mr Stretch said. “The lack of power is affecting the mills’ processing capability. Farmers are watching but feel somewhat powerless — we have to cross our fingers and hope they can work this out,” he said. Steve McGuire, vice-president of WAFarmers, also a Kojonup wool producer, said the fundamentals of supply and demand in the Australian wool market were in balance, but other issues continued to affect pricing. In recent times these included COVID affecting global demand for high quality woollen garments, steeply rising shipping costs and most recently the power crisis. Mr McGuire said a concern with ongoing volatility in the wool market was that more farmers could turn away from Merino sheep, given high grain and meat prices which are presenting attractive competition for land use. According to Rural Bank, Australia exported $2.5b of wool in 2020/2021, of which more than $2.1b went to China. WA was responsible for $512 million of wool exports during the year.