Wool prices collapse as the pandemic dries up demand for luxury fabrics

Wool prices have fallen to their lowest level in more than five years as the coronavirus pandemic bites down on global demand. The 2019-20 wool selling season closed this week with the benchmark Eastern Market Indicator falling 35 per cent over the year to $11.10/kg, marking its lowest level since early 2015. By contrast, just two years ago the EMI broke through the $20/kg mark — driven higher by low wool supply. But with fewer people buying garments amid the pandemic, Chinese mills — which buy 87 per cent of WA’s merino wool exports — have almost ground to a halt, meaning lacklustre demand for wool. In 2019, WA raw wool exports were worth $608.6 million — down 13 per cent on 2018, according to the Department of Primary Industries and Regional Development’s Sheep Notes. And with global demand for end products shrinking, that amount could fall further this year. Data from the China Wool Textile Association showed China’s exports of woven wool clothing were down 35 per cent in the January-April period, while exports of wool knitwear fell 30 per cent. Australian Wool Innovation chief executive Stuart McCulloch said there were many ways the pandemic had affected demand but the most profound was through less buying of garments. He said with social distancing and lockdowns in many countries, people had been unable to get to stores to buy garments. “Furthermore, global economies have been badly shaken and many people do not have the spending power they once had, while potential unemployment weighs heavily on many consumers,” Mr McCulloch said. Kojonup farmer Rob Egerton-Warburton said he was not surprised the wool price had collapsed. He said longer-term demand had weakened because fewer people were embracing traditional attire such as woollen suits and evening wear. He said the industry had not done enough to reposition and promote wool for alternative uses, namely in undergarments or casual wear, where he felt there was more opportunity. The pandemic put another nail in the coffin by drastically reducing demand further. He does not expect rapid recovery, given the poorer economic conditions meant even less money for luxury items like wool. Another issue is farmers do not want to sell at low prices, so wool is being retained on farm and in woolstores, and stockpiles are building. “If there are signals to start processing wool again, it will take a couple of years to get the backlog of wool out of the system,” he said. “I imagine it will be two or three years before things fire up again.” Mr Egerton-Warburton said today wool made up a relatively small portion of farm incomes. Wool accounted for less than 20 per cent of his farm’s profits, compared with 100 per cent 20 years ago. This view is backed by BJW Agribusiness consultant Tim Johnston, who said record high prices for WA sheep meant many merino enterprises (which produce lambs) were still profitable. Strong sheep demand is driven by restocking demand from the Eastern States after years of drought — and strong global demand for protein. “For the foreseeable future wool growers are reasonably comfortable that at least sheep and sheepmeat prices are holding up so the overall profitability of the merino sheep enterprise is still very good,” he said. “Overall farms are far more diversified and wool represents a smaller proportion. “Even those with a lot of merino sheep also have cropping programs, where returns have been strong. “Very few WA farms would be overly exposed to the wool price.”