By Chris Wilcox | Source: Australian Bureau of Statistics, Beef + Lamb NZ, Secretariado Uruguayo de la Lana, Federacion Lanera Argentinas, Cape Wools SA
2014 has seen a major divergence in the direction of raw wool demand, between China on the one hand and a number of the other major wool processing countries on the other. Unfortunately, the ‘gorilla’ (being China) holds sway for total wool demand.
There have been very good increases in raw wool imports by some of the major wool processing countries. India, the Czech Republic, the UK, Malaysia, South Korea and Egypt have all recorded solid lifts in imports of raw and semi-processed wool in the first five months of 2014. Figure 1 shows the % change in raw wool imports by each country/region in the first five months of calendar year 2014, while the size of each bubble represents the total imports for the 11 months of the 2013/14 season (July to May).
India, in particular, has seen a very strong 27% lift in raw wool imports from the major wool exporting countries. This strong increase is, in part, a rebound after declines in raw wool imports in 2012 and 2013. The increase in imports by India has also been aided by an increase in its exports of wool knitwear. India’s imports have returned to levels last seen in 2011.
Raw wool demand by the Czech Republic has increased by 8%, while imports by ‘other Europe’ (notably the UK) has lifted by 13% (figure 1). Raw wool imports by ‘other’ countries has increased by 1%, although this includes strong 5-15% increases in imports by countries such as South Korea, Malaysia and Egypt.
These increases in raw wool demand by a number of significant processing countries have not been enough to outweigh the drop in imports by the largest wool processing country, China.
China’s imports have dropped by 15% in 2014 to date. Mills in China are responding to a combination of weak domestic and export demand, excess stocks and tight credit availability by cutting their purchases. And, with China accounting for 62% of raw wool imports from the major processing countries, whatever the ‘gorilla’ does is what the total does. In total, raw wool imports from the five major wool exporting countries dropped by 8% in 2014 to May.
There is no doubt that the weak auction demand in Australia leading into the 3-week July recess was due to poor demand from China, even though there has been better demand by other important processing countries.
This situation will remain after the auction recess until demand from China improves. Once it does, even to a relatively modest degree, then wool prices are likely to respond swiftly, aided by the good demand coming out of India, the Czech Republic, and others.
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