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Wednesday, September 25, 2013

Recovering global economy and low production bolsters wool

By Chris Wilcox  |  Source: IWTO, Consensus Forecasts

Key points

  • World economic growth on a recovery path
  • Demand for fine and superfine wool likely to benefit most
  • Low world wool production provides a base for prices
  • High superfine wool production to cap price gains

2013-09-25 Outlook For Wool Bolstered FIG 1

2013-09-25 Outlook For Wool Bolstered FIG 2

After a season of lacklustre wool prices and subdued global economic conditions, the outlook for wool over the next 12 months is relatively bright as a result of a number of positives.

First and foremost, economic growth in the major wool consuming countries is expected to improve. The economies of the major wool consuming countries in Europe have finally started to recover and are expected to record positive growth. The US economy is on a steady growth path, as is Japan’s. China’s economy is expected to also improve from the recent economic growth slowdown. As figure 1, shows this means that world economic growth (as weighted by wool consumption) will lift from the lows recorded in the first half of 2013.

This is bringing improved consumer confidence. This, in turn, should result in better clothing retail sales during the current Autumn/Winter season in the Northern Hemisphere. Retailers will then begin placing orders for product for the 2014 Autumn/Winter. These orders should boost demand right through the wool textile industry.

A further positive is that the A$ has fallen back in recent months, which has made wool prices relatively cheaper in US$ terms and improved wool’s price competitiveness with competing fibres. The better raw wool demand is most likely to begin around November, although the exact timing is, as always, uncertain.

While wool in all micron ranges will benefit, fine and superfine wool may see the best improvement, as demand for superfine wool products is more sensitive to economic conditions and consumer incomes.

At the same time, world wool production is expected to remain at around 70-year lows in 2014 and beyond (figure 2). As the figure shows, world production has essentially been at the same level since 2009 and is projected to remain there until at least 2017. This will provide a solid foundation for wool prices.

While total wool production will be low, production of superfine wool is likely to remain at high levels, in part due to the dry seasonal conditions seen in Australia in 2012/13. This elevated production level will continue to be a brake on superfine prices.

What does this mean?

The combination of improving economic growth and consumer confidence, lower A$, better price competitiveness with other fibres and low global wool production is expected to boost wool prices in 2013/14.

The improvement is likely to begin around November. Producers could consider the timing of when they market their wool and, if their cash-flow situation allows it, aim to market their wool in the first half of 2014.

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