Crossbred prices have picked up since mid-year after three years of badly underperforming the general apparel fibre complex. This article takes a look at the recent lift.
In early September, Mecardo showed how crossbred prices had gone their own way after the initial pandemic shock in 2020, drifting lower in price for three years with little correlation to other apparel fibre prices. Since June the 28 MPG has risen by 101 cents (33%), arguably its best rally since late 2020. Figure 1 shows the 28 MPG in both Australian and US dollar terms from mid-2018 to last week (monthly averages), along with a simple 28-micron average price (all wool included). In US dollar terms the 28 MPG is up 58 cents (29%) for the same period.
To put the recent crossbred prices in some context Figure 2 shows a deflated 28-micron price series in US dollar terms from 1970, along with the price ratio for that series to a comparable polyester staple fibre (PSF) price series. Clearly, the deflated micron price of recent years is well below the deflated US 500 to 1000 cents range it had stayed in from 1991 to 2019.
However, the point of Figure 2 is to show the price ratio to PSF. With a couple of fleeting exceptions, a price ratio of two (the 28-micron price being twice the PSF price) has been the minimum. The 28-micron ratio to PSF fell to around this level a year ago and has stayed there in a range of 2 to 2.3 since. This ratio tells us only when the 28 (and 30) micron price is cheap enough compared to PSF prices, can it find support. It tells us nothing about how long it will stay at this level. What it does tell us is that a bounce in the crossbred price is unsurprising. The question is whether it is simply a bounce in price or the start of a recovery.
Figure 3 shows all-in-micron average prices for 28 to 34 microns in US dollar terms, from 2000 to last week. The prices are shown in US dollar terms as we are interested in looking at the market as the supply chain would, rather than looking at it in Australian dollar terms from our corner of the world. The kick-up in price since June shows up in all the micron categories featured in Figure 3. Note how 32 and 34-micron prices reached their low points earlier, in 2020.
Figure 4 shows the quarterly gross value of crossbred wool sales from mid-2015 to the September 2023 quarter. The March quarter regularly has the largest gross value of sales, driven by sales volume. After retreating from the high gross sales values of 2011-2019 the quarterly gross sales value for crossbred wool in US dollar terms has settled at reasonably consistent levels.
To get significantly higher crossbred prices requires either the supply chain to allocate more capital to crossbred purchases (as they did in the 2011- 2019 period) or for volume to fall. If anything, crossbred volume is rising and the recent quarterly gross sales value shows no sign of significant change, therefore the upside in crossbred prices appears limited.
What does it mean?
The recent 33% increase in the 28 MPG, off a very low price in mid-2023, does not look to be the start of a major recovery in crossbred prices. It seems too early for that given the economic backdrop to the market, the plentiful supply of crossbred wool, and the level of gross sales value the supply chain has settled at for crossbred wool in recent years. There are a couple of positive factors for crossbred wool at present. A weaker Australian dollar would certainly help the local price and if supply eases in 2024, it would help underpin higher prices.
Key Points
- Crossbred prices have picked up from the low levels of June.
- The 28 and 30-micron prices remain at very low levels in relation to PSF prices, therefore they appear supported so long as PSF prices do not drop.
- Further significant rises in US dollar terms appear limited as supply remains plentiful and the crossbred gross sales value does not appear to be increasing.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: AWC, WI, AWEX, RBA, PCI Raw Materials, Emerging Markets, ICS, Mecardo
