Wool prices, like the apparel fibre complex generally, are working their way through a period of low prices. There are a few bright spots in the apparel complex such as the linen price, driven higher by low flax supplies, and the very fine merino micron categories. This article looks at merino prices in Australian and US dollar terms.
As the IWTO points out the issues driving low prices in the
greasy wool market derive from the global economy and its effect on textile
markets (read more here). A startling example
is the year-on-year fall in clothing imports during the first quarter of 2024 by
the United Kingdom of 20.57%. Little wonder that Chinese processors are finding
life tough with this type of contraction in export demand.
To put current low prices in perspective Figure 1 shows the
average price for 18.5 micron wool (indicator types) by season from the
mid-1990s to this season (the past three weeks only) in deflated US dollar
terms, along with the seasonal range in price. The 18.5 micron category is used
as this has been the average fibre diameter of the Australian Merino clip in
recent years. Figure 2 repeats the exercise in deflated Australian dollar
terms.
As Figure 1 shows the current price, around US 1000 cents,
is basically rock bottom. Price fell briefly to around this level four times in
the decade to 2009 and again briefly in 2020. Figure 2 shows a similar story in
that in Australian dollar terms the price is also plumbing rock bottom, having
been near current levels in 2006, 2009 and 2020. Figure 2 also shows some
differences to Figure 1, such as the fine wool boom cycle which appeared in
2000 and 2001 in Australia (and New Zealand) was substantially driven by low
currencies. The opposite occurred around 2011 when a moderate price cycle in
Australian terms was a super strong one in US dollar terms.
Two tables are also provided in this article, providing 15-year
percentiles in deflated terms for 14 through 21 micron (again indicator types).
Table 1 shows deflated US dollar prices and Table 2 shows deflated Australian
dollar prices.
The percentile tables show current prices to be low (with
the exception of 14-15 micron), but also show the potential for higher prices
when demand starts to improve. It is not much of a stretch to envisage prices
lifting by 30-50% on the sniff of improved demand or in more sober terms, a quite
moderate cyclical upswing.
What does it mean?
For Australian wool producers, demand at the retail level (primarily) and the exchange rate (secondly) are major drivers of price. Demand, hence price, is weak at present for the textile complex generally with some minor exceptions such as very fine merino wool. Historical prices, adjusted for inflation, show there to be plenty of upside when demand begins to pick up, with the “when” the key uncertainty.
Key Points
- Merino prices are plumbing rock bottom as a rule, with the exception of 15 micron and finer categories.
- The textile complex is struggling with weak demand generally, so wool as usual is tracking along with the larger textile complex.
- There is plenty of upside in price when demand finally starts to improve.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: AWEX, RBA, US Federal Reserve, ICS, Mecardo
