Monthly Market Reports

August 2011

3 September 2011

In this edition of the Market Intelligence e-newsletter, we provide some context for the apparent softening of the wool price in the recent months – worth bearing in mind given the sometimes dramatic short-term market reporting one sometimes observes. AWI’s position remains that the fundamentals are in place for positive wool prices for Australian growers for the foreseeable future – driven by increasing demand in emerging affluent economies such as China, India and Russia, and also tight supply.

Figure 1 shows the number of bales offered for sale season-to-date, compared to the previous 2 seasons. What should be immediately obvious is that volumes of greasy wool offered for sale this season are up substantially on previous years:

  • 26% (50,438 bales) more than 2009/10
  • 14% (29,408 bales) more than 2010/11

Anecdotal reports suggest that this additional volume reflect an earlier start to shearing for some, and also wool held back into the new financial year.

A second point to consider is whether there have been technical changes in the nature of the clip. Using AWTA Key Test datai, Figure 2 compares monthly average washing yields for the most recent 13 months against the monthly averages for the preceding 5 years (2005/06 – 2009/10).

Reflecting the improvement in pasture growth experienced in much of Eastern Australia in 2010/11, note how the yield began to climb for wool tested after November 2010.

Since March 2011, the monthly average yields have been running at around 3% higher than the preceding 5-year average.

Adjusting for this higher yield, the offering of clean wool so far in 2011/12 has been up around 17% on the same period in 2010/11, and 33% up on the same period in 2009/10. So while volumes of greasy wool coming onto the market since February have risen year-on-year, the volume of clean wool offered to buyers has risen much faster.

Again based on AWTA data, Figure 3 shows the trends in vegetable matter (VM) content of wool tests over the past 25 months. Note how the VM content of wool tested has increase rapidly in recent months, compared to 2009/10 (a generally dryer year).

For the most recent complete month (July 2011), the average VM contents is 0.6% higher than 2009/10 – proportionally, a 26% increase over July 2009.

The increased VM will be translating into increased card wastes, fibre breakage and noils for topmakers – perhaps why there is evidence emerging that high staple strength wools are resisting recent downward price moves better than weaker types.

The take-home message? It is perhaps understandable that we have seen some weakening of wool prices in the most recent months – the volumes of clean wool being offered to buyers has increased dramatically compared to the same period in preceding years, and it is of a much higher VM content. Nonetheless, prices remain at extremely healthy levels, especially for coarser Merino types, and our often-repeated view remains the same - the fundamentals are in place for positive wool prices for Australian growers for the foreseeable future.

A demand side tidbit

A very successful AWI program which has been ‘flying under the radar’ for some time in grower minds is the use of mercerized Superfine Merino as a cashmere substitute. Mercerisation is a process which removes the scales from wool fibres, improving lustre and softness, and when suitably short (e.g. 50-60 mm) Superfine Merino wool is mercerised and semi-worsted spun, the resultant knitted fabric can be almost indistinguishable from pure cashmere, at a fraction of the cost. The economic opportunities for spinners and knitters can be substantial – for the last decade, hosiery cashmere has traded at around 8-10 times the price of 18.5 micron Merino. We expect lots of Mercerised Merino yarns to be featured at SpinExpo when it starts on 6th September in Shanghai, many from spinners who formerly specialised in cashmere. The importance of these events is that they provide an insight into the sorts of product concepts we expect to see the following northern hemisphere Autumn/Winter – in 2012/13.