US uncertainty, cotton loom over wool market

A big drop in US consumer confidence and the fall of cotton prices are challenges looming for the wool industry.

Although wool clothing demand is still very strong, it is feared that such issues could affect sales figures.

The US is the second biggest apparel wool market, with a share of 11 per cent of the world total, after China.

With US unemployment lifting to 9.2 per cent in June, there are serious economic concerns in the country on the back of its current $14.2 trillion debt ceiling crisis.

The US treasury is urging a Republic-controlled Congress that failing to lift the debt limit will cause the Government to default on its legal obligations, causing another financial crisis.

The National Council of Wool Selling Brokers of Australia executive director Chris Wilcox said the issue was weighing heavily on US consumers. He said lower consumer confidence might result in weaker apparel retail sales in the coming months.

“There was a sharp decline in real value of US clothing retail sales in 2008 and 09, during the GFC, ” Mr Wilcox said.

“The good news is the strong lift in imports of wool clothing by the US beginning at the start of 2010 continued steadily up until the latest account of May 2011. However, the debt crisis now has the June US consumer confidence level dipping to 58.5 from a post-GFC high of 72 in January.”

Also challenging raw wool demand would be the current drop in cotton prices.

Mr Wilcox said the 2010–11 record cotton price rises played an vital role in driving higher wool prices.

However, after reaching a post-Civil War record of US236c/lb in March, 2011, the CotLook A index has fallen back to US116.60c/lb, a drop of 33 per cent in seven weeks.

“The drop is a combination of sharply lower consumption due to high prices and predictions of a 10 per cent jump in cotton production in 2011–12, ” Mr Wilcox said.

“Even so, the current CotLook A Index is 40 per cent above the level in July 2010, so cotton prices still are very strong.”