By Andrew Woods | Source: AWEX, World Bank, Cotlook, PCI Fibres, WTiN,ICS
Wool fits into the world of fibres as a large small fibre, although this is not entirely correct as the wool market itself is made up of a collection of related but different markets. At the extreme, think of the 38-39 micron carpet wool from New Zealand and the ultrafine merino wool that comes Australasia. Both come under the heading of wool but they have nothing in common except that the both come from sheep. This article takes a look at current price levels for range of fibres, giving us some context as to how wool is travelling.
Figure 1 gives the five year price ranks (March 2016 average prices) in Australian dollar terms for a range of wool micron categories and the merino cardings indicator, some of the other natural fibres (such as mohair and cashmere), cotton, polyester staple and acrylic plus an average oil price. Price ranks (percentiles) provide a way of comparing the price performance of different commodities which is not possible by comparing prices directly.
Wool prices (with 16 micron dragging the chain) are performing light years ahead of most other fibres, with only mohair and silk keeping up. With the exception of the 16 micron category the wool categories shown are all above their respective 70th percentile levels for the past 5years. Cotton follows wool, with a rank around the 25th percentile, then comes oil and the manmade fibres (along with angora), in the bottom decile.
Before the marketers start to crow about how well demand is being developed for wool (merino combing, carding and crossbred) we need to check the price ranks. One way to do this is to look at them in US dollar terms, which strips out the effect of the floating Australian dollar. Figure 2 shows the same analysis as in Figure 1 but in US dollar terms. If you like, this is the underlying story for the conglomeration of wool markets. The merino cardings indicator is irrepressible, still ranking over 90% in US dollar terms. The combing wool categories still outperform the major fibres, but in a more sober manner. The performance of the 16 micron category is in the bottom decile and is on par with the performance of cotton, cashmere and crude oil.
Cotton and oil have oversupply issues, with the oil over supply problems flowing through to the manmade fibres. Fine merino wool also has an oversupply issue. Medium and broad merino wool have an under supply issue which helps explain the difference in performance shown in Figure 2. Note that the 30 MPG in USD terms is trading at a low level by the standards of the past five years. Cardings are simply in a sweet spot.
The combination of favourable exchange rate movements during the past 24 months and limited supplies of medium and broad merino have helped to lift the performance of these wool categories in relation to other fibres. Oversupply explains a lot of the poor performance of cotton and 16 micron wool, with low oil prices putting pressure on manmade fibres. Crossbreds have come off the boil (seen in 2015) and this is reflected in the low rank for the 30 MPG in US dollar terms. The stellar performance of cardings is different altogether and seems to be a function of the strong demand.
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