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Tuesday, October 25, 2016

Fibre prices - who is winning?

By Andrew Woods  |  Source: World Bank, AWEX, Cotlook, PCI Wood Mackenzie, RBA

Key points

  • Merino cardings and combing wool are the best performing apparel fibres by five year price rank in US dollar terms.
  • The cotton price rank has picked up in US dollar terms, which is good news as it has quite a good correlation with the wool prices.
  • While the crude oil price rank has picked up, polyester and acrylic price ranks continue to lag in the bottom decile.
  • Australian dollar price ranks for merino carding and combing wool are high.

2016-10-25 Wool Fig 1

2016-10-25 Wool Fig 2

Wool operates in a complex of different, interconnected fibre markets which are part competitors and part complimentary. As such it pays to keep an eye on the performance of these markets to see if wool is “in” or “out of position”. This article takes a look at the current price rank for a range of apparel fibres.

In August Mecardo looked at the relationship between merino wool prices and major apparel fibre prices through their rolling 5 year price ranks. In the absence of factors (usually supply related) peculiar to individual fibres the price ranks for the different fibres tend to follow similar cycles and trends. For this reason snapshots of price ranks for the different fibres can give some perspective as to whether wool prices are at sustainable levels or are at risk of moving in order to come back into line with the general apparel fibre levels.

The first snapshot in Figure 1 shows the September 2016 five year price ranks for a range of apparel fibres, as well as crude oil, in US dollar terms, which is roughly how the supply chain “sees” the relative price values. They are ranked from high to low, left to right. Merino Cardings continues to be the star apparel fibre. Combing merino prices come next in order (around the fibre year median levels), followed by cotton, 16 micron and silk (in the 30th to 40th rank). After that comes a range of fibres in the bottom two deciles with the 30 MPG bringing up the rear.

In Figure 2 a snapshot of five year price rankings for different fibres is shown in Australian dollar terms. This view approximates how we see the apparel fibre markets from the perspective of the farm gate in Australia. The ranking shows the average merino micron combing price (about 19 micron) is the best performer followed by the broader and then finer (by two microns) categories. Cotton comes in at a respectable 84% ranking followed by merino cardings at 75%. 16 micron, mohair and silk are around the 60th percentile and then we drop down to cashmere around the 20th percentile, with crude oil, angora, acrylic and polyester all in the lowest decile.

The drop in the value of the Australian dollar from parity with the US dollar in mid-2013 to around US70 cents by mid-2015 continues to cause the markedly different price ranks between Figures 1 and 2. 

What does this mean?

Merino carding and combing wool prices in US dollar terms continue to outperform other fibres. Merino wool, unlike cotton and manmade fibres, has a small and limited supply which helps to underpin its outperformance in price terms. There is a limit to this outperformance however cotton prices have picked up this year which will help reduce the risk of merino out pricing itself. Polyester, the “silver back” of the apparel fibres remains very cheap which is a concern directly for cotton but also for wool as it will tend to dampen prices for the apparel fibre complex. 

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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