Autumn acid test for market

The Merino industry proved resilient once again during the 2010-11 season as wool averages hit all- time highs in actual terms and sheep prices climbed to new heights against a rising Australian dollar.

Reaching parity on October 15, 2010, the $A also hit a record high, since the 1983 float and on May 2, 2011, it traded at $1.10 against the $US.

The question remains how long will demand for Australian food and fibres continue to outstrip supply?

Australian Wool Innovation (AWI) director Brian van Rooyen said wool top supplies were now so critical that deliveries of tops or combed wool had blown out from eight to 18 weeks.

“There is no inventory in the pipeline, ” Mr van Rooyen said.

“With the $A at such high levels, it will be interesting to see if retailers make a price adjustment for their winter lines.”

Mr van Rooyen foresees China increasing its 75 per cent take of Australian greasy wool supply during the 2011-12 season.

“In the short-term prices should remain buoyant, ” he said.

The surge of economic growth in China has been a big driver for increased demand and as the country’s wealth continues to grow, so does domestic consumption.

“China is consuming half of its wool imports, ” Mr van Rooyen said.

AWI market intelligent and trade reporting manager Paul Swan said China had a five-year plan in place to support the transition of its economy from an export-driven model to one of domestic consumption.

“The domestic consumer expenditure on wool garments will become more important than export income to China’s textile industry, ” Dr Swan said.

Meanwhile, the nation’s textiles and apparel exports show a year-on-year rise of 39.1 per cent with $US20.34 billion traded in May 2011.

The National Council of Wool Selling Brokers of Australia executive director Chris Wilcox said China’s wool garment exports were divided into three main markets.

“In 2010, the European Union with a 28 per cent share, was the biggest, followed by Japan, 22 per cent, and the US, 20 per cent, ” he said.

When the tsunami hit Japan in March, Mr Wilcox said, at the time, there was concern the tragedy would lead to a slowdown in purchases by Japan from China and a build-up of inventories through the pipeline.

In the northern hemisphere, the economic instability has added to the chill of two consecutive cold winters.

UK textile manufacturer Bulmer and Lumb chairman Bill Waterhouse said consumers, out of basic need of keeping warm, were now more conscious of the thermal properties of wool garments.

“However, this new lease on comfort will be tested next autumn when retailers will be passing on higher costs of wool, ” Mr Waterhouse said.

He said it was probable that at the cheaper or middle end of the market, consumers would substitute wool for a cheaper alternative fibre.

“At the top end, there will be little change, but if wool prices continue to rise, I can see sales of wool garments falling dramatically in autumn 2012, ” he said.

“The thermal properties of wool are much more of a key selling point for outdoor or knitted garments rather than menswear or ladies formalwear fabrics.”