By Andrew Woods | Source: AWEX, RBA, PCI Wood MacKenzie, Cotlook
Apparel fibre prices operate in a mix of markets with relationships which vary with time due to changes in supply and or demand. As an example, the cotton industry worries when polyester is cheap as the potential to steal market share is greater. This article takes a look at a couple of different aspects of apparel fibre price relationships.
In August, Mecardo showed that merino combing prices were expensive in relation to acrylic fibre and cotton prices. The price percentile used to compare the different fibres were in US dollar terms, as it is useful to look at price levels from the perspective of the majority of the buy side of the market. Wool prices can get out of position with the general level of apparel fibres but ultimately they will work their way back into position.
Earlier this month Mecardo showed that broad crossbred prices had fallen compared to year earlier levels. Figure 1 compares the price for Angora (~31 micron) and the 30 MPG in US dollar terms from 1998 onwards. The 30 MPG price is shown on the right hand scale and the Angora price on the left hand scale. While the two fibres have markedly different price levels, the two series have followed each other quite closely during the past 20 years.
Wool prices tend to outperform other fibres in the 2002-2003 period when wool went through one of its standard post stockpile price cycles, and the 30 MPG in relation to Angora is no exception. Since the middle of 2016 the Angora price has steadied after falling from late 2014. A steady Angora price is a good sign for the 30 MPG in terms of limiting the scope for downside.
The second comparison shown in the article in Figure 2 is the Merino Cardings indicator and the 22 MPG, in US dollar terms from 1960 onwards. The difference between these two indicators is primarily length (one is combing – long, and one is carding length - short). For most of the past 57 years the two series have followed each other (at different price levels) through the trends and cycles of the greasy wool market. However in 2014, the 22 MPG weakened (into 2015) while the MC started to strengthen. Since then the MC has risen to trade at levels above the 2011 highs, in US dollar terms. The standard reporting we see of the MC and MPGs is in Australian dollar terms, which has been boosted by the falling Australian dollar from above parity to the US dollar in 2011 to around US70 cents in late 2015.
Cardings prices have been the best performing apparel fibre prices in recent years, with merino locks selling for up to 1400 cents clean last week at auction. Historical price relationships say cardings are expensive in any way you wish to dice the data. Time will tell whether this view is correct or the world of cardings has changed.
The first point to make is that no fibre “is an island” which means all fibre prices need to be viewed in the context of competing and complimentary fibre prices. With this in mind the steadying of angora quotes fits with the view that broad crossbred prices are finding a base. Merino cardings prices, which have been the star fibre in recent years, continue to challenge their old relationship to combing prices. It would be nice to see some good research on why this is the case. History says cardings are out of position, time will tell us whether this is so or not.
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