The 2023-24 season finished with wool prices generally easing, as they have for most apparel fibres. In this article, we look at the 16-18 micron categories in terms of volume, price, and gross sales value.
Mecardo last looked at the price, volume, and gross sales
value of fine merino wool in May 2021 (read more here).
In this article deflated US dollar values are used to help disentangle the
effect of inflation.
Figure 1 shows the annual volume of 16-18 micron wool sold
since the mid-1990s to last season in clean metric tonnes (line referring to
the LHS) and the annual gross sale value (GSV) of 16-18 micron wool sold in
deflated US dollar terms (bars referring to the RHS) along with an average of
the GSV since 2010-11. The average GSV for the past 14 years has been US$797
million in deflated terms, with two outstanding seasons where the GSV was 40%
above this level (2017-18 and 2018-19) and three seasons where the GSV was 15%
to 19% below the median (2015-16, 2019-20 and 2023-24).
Figure 2 replaces volume with the average 16-18 micron
price, which has a high positive correlation with the GSV. Clearly, it is the
demand side of the market driving price and GSV up and down, with supply a
secondary factor. This matches with the relationship seen between 15-micron
price and supply in last week’s article (read
more here).
Volume has increased in recent seasons, after appearing to
plateau. The recent increase seems most likely to be driven by seasonal
conditions, rather than a structural increase based on more fine wool sheep,
with the implication that supply will shrink given improved seasonal
conditions. The increase in volume has come at a time of weak demand as
demonstrated by the GSV being well below US$797 million (the median level since
2011). For 2023-24 the GSV was down year on year by 10% to US$655 million,
clean volume was up 13% for the season and price down by 21%. 16-18 micron
prices were subject to a smaller expenditure by the supply chain as well as
increased volume.
If we use the median GSV as a guide to what the supply chain
will spend at Australian auctions for 16-18 micron wool combined with last season’s
volume sold, the average price works out as 21% above last season’s level. To
be conservative, if the two high price seasons (2017-18 and 2018-19) are
removed from the calculation, thereby dropping the median GSV of the past 14
years to US$768 million, the average price works out at 17% above last season’s
level. This is a scenario where demand makes only a moderate recovery.
To convert this scenario into Eastern AWEX MPGs, the current
17 MPG is 1641. The 17 MPG averaged 1765 in 2023-24. An increase of 17% to 21%
would yield a price range for the 17 MPG (annual average) of 2065-2135 cents.
What does it mean?
The median gross sales value from the past 14 years provides a simple measure to help offset the tendency to assume current prices/returns are a guide to the future. The variation of the GSV around the recent median shows demand waxing and waning, as it does for apparel fibres such as wool.
In recent seasons demand has waned, as volume has increased (a double whammy for price). At some point, demand will again wax, and the GSV gives us a benchmark as to its likely effect on price. In this case, a moderate improvement in demand could easily lift prices by 17% to 21% for the 16-18 micron categories.
Key Points
- The gross sales value (GSV) of 16-18 micron wool fell by 10% in 2023-24 to US$655 million, which is 18% below the median GSV (US$797 million) of the past 14 years.
- The clean volume of 16-18 micron wool sold at auction increased by 13% last season, helping the price fall by 21%.
- On the reverse side, a moderate recovery in demand would easily see the average annual price left by 17-21% using the median GSV as a guide to supply chain expenditure on 16-18 micron wool in Australian auctions.
Click on figure to expand
Click on figure to expand
Data sources: AWEX, RBA, ICS, Mecardo
