Long look at 15 micron supply and prices

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Fine merino prices tend to vary year to year inversely with the change in the supply of the fine micron category under consideration. It is an easy progression to assume that the longer-term trends follow a similar pattern. With this in mind, we take a long-term look at 15-micron price and volume.

This article starts with a quote from Stephen Hawking, “One of the basic rules of the universe is that nothing is perfect. Perfection simply doesn’t exist…..Without imperfection, neither you nor I would exist”. The point of the quote is that supply can help us understand what has been happening to price, but it is an imperfect analysis as we are not taking into account other sources of 15-micron wool (New Zealand for example) and what has been going on in the cashmere market.

Figure 1 starts with the annual volume of 15-micron wool sold at auction, to the late 1990s and after that production through AWTA core test volumes compared to annual average deflated US dollar prices for 15-micron sold at auction (combing length wool to the mid-1990s and from then on indicator fleece types). The series runs from the mid-1980s. In the mid-1980s the annual volume of sales was less than 10 greasy tonnes, with prices varying between US$40 to $150. From around 2000 the supply began to pick up significantly, trending upwards to vary between 2,000 and 3,500 greasy tonnes per season during the past decade. At the same time, prices descended from the stratospheric levels of the late 1980s to track between US$15 and US$30 during the past decade.

Figure 2 compares the same 15-micron price series from Figure 1 (LHS) with a price series for white cashmere which refers to the right-hand scale, and is three times the 15-micron scale (for example a 15-micron price of US$40 would be US$120 for the cashmere series). Ignoring the price difference between the two series, Figure 2 shows the 15-micron and cashmere series to be following similar cycles.

The two series in Figure 2 are converted to a ratio where the 15-micron is converted to a ratio of the cashmere price, which is shown in Figure 3 (LHS) along with the supply of 15-micron wool (RHS). The high 15 micron prices of the late 1980s in terms of price ratio to cashmere translated to a range between 0.2 to nearly 0.6. As supply starts to trend higher from 2000, the 15-micron price ratio to cashmere falls below 0.2 (except for a brief recovery in 2008) and then spends the next 15 seasons ranging between 0.1 and 0.2. As the price ratio stabilised, supply continued to trend higher albeit with some wild swings around the trend. The outcome of this change is the reduction in the correlation between supply and the price ratio to cashmere from relatively high levels to no correlation. It is a similar story for the correlation between volume and the 15-micron price and volume and the 15-micron premium to broader Merino prices.

What does it mean?

The change in the supply of 15-micron wool during the past four decades has been dramatic, taking 15-micron from being a rare fibre along the lines of vicuna to a level now comparable to mohair, camel hair and yak hair. With this change in supply, prices have fallen from the high levels of the late 1980s. However, during the past 15 years as supply has trended higher, price and price ratios to other fibres have stabilised within a range with year-to-year swings in supply pushing prices around within the range.

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Key Points

  • Year-to-year changes in the supply of 15-micron wool are partially correlated to year-on-year changes in the 15-micron price.
  • The longer-term correlation between supply and price ratio to cashmere is different, as the correlation has weakened greatly during the past 10-15 years.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: WTiN, AWC, CSIRO, WI, AWEX, RBA, US Fed Reserve, ICS, Mecardo

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