Last month Mecardo looked at apparel prices, showing only cotton was exhibiting strong price rises with the majority drifting sideways after the strong recovery from 2020 lows. News of electricity rationing in China surfaced a few weeks ago, which raised the uncertainty levels for greasy wool prices. Historically factory gate inflation (Producer Price Inflation) is correlated to energy prices in China and this correlation is once again in evidence, for manmade fibres.
Figure 1 shows a basket of apparel fibre prices, all based to their price in mid-2020, to October. In October the big apparel staple fibres, cotton and polyester, have increased their USD prices by 12% with acrylic and viscose increasing by a more moderate 4-5%. These are big changes in price for the bulk of the apparel fibre market. In contrast the natural fibres apart from cotton; silk, cashmere and merino wool are effectively unchanged. Mecardo looked at the relative size of these different apparel fibres in late August.
What about the man-made raw materials, the feedstocks? Figure 2 shows a similar analysis to Figure 1 for feedstocks, merino wool and thermal coal rather than oil, as thermal coal is the chief source of power for Chinese electricity. The rise in the thermal coal price dominates, nearly five times its price in mid-2020. That is a big rise by any commodity standard. In October MEG, a feedstock for polyester was up by 15%, with the other feedstock price increase more moderate.
Substantial rises in cotton and polyester due to their relative size within the apparel fibre universe appear, at worst, likely to support greasy wool prices, or more likely help drag them higher. This is a short term outlook. In the medium term, from early 2022 onwards, the question is whether the higher apparel fibre prices are sustainable or will ease when the worst of the squeeze on energy prices passes.
What does it mean?
The apparel fibre backdrop to the merino wool market has improved with manmade fibres lifting in October, while cotton continues to trend higher as it has done since mid-2020. Wool prices tend to follow the general trend of the apparel fibre markets (up and down) except when there are exceptional circumstances.
In the current market there are no such circumstances evident, so wool prices seem likely to be dragged higher. After the northern hemisphere winter has passed and energy prices ease, the question is will manmade fibre prices follow and act as a headwind for wool prices?
- Manmade fibre and cotton prices have jumped in October.
- Natural fibre prices, apart from cotton, have yet to follow this lead.
- The rise in Chinese manmade fibre prices fits with the rise in energy costs.
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Data sources: Emerging Textiles, Cotlook, AWEX, RBA, World Bank, ICS