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Saturday, May 24, 2014

Tough conditions for wool textile businesses, with hope for rebound

By Chris Wilcox  |  Source: International Wool Textile Organisation

Key points

  • Tough business conditions again in 2013 for key sectors of the wool textile industry.
  • Garment making, weaving and spinning sectors under most pressure, cascading to the early stage processing sector in the first half of 2014.
  • Excess stocks have built up.
  • Knitting and interior textiles sectors doing well.

Business conditions were tough for many sectors in the wool textile industry in 2013, continuing the pattern seen since the second half of 2012. There has been a moderate improvement in some sectors in the first half of 2014. A solid rebound in all sectors is expected in the second half of the year.

The latest results from the International Wool Textile Organisation’s (IWTO) annual wool textile business survey were presented at the 2014 Congress of the IWTO held in Cape Town at the end of April. As figure 1 shows, business activity was poor in many sectors of the world wool textile industry at the end of 2013.

The improvement that had been expected when the Survey was previously taken in May 2013 did not eventuate, which hurt key sectors, notably garment making, weaving and spinning. These negative results cascaded to early stage processing in April/May 2014, when the current Survey was taken. While poor order levels were a particular concern, the 2014 Survey results pointed to excess stocks, notably of greasy wool, wool top, wool yarn and wool fabric, by April/May 2014. Given these results, it is no wonder that demand for raw wool for use in the apparel industry has fallen in recent months.

There are some bright spots, however, with both the knitting and interior textiles industries reporting on-going good to very good production activity levels (figure 1). As well, stocks are under control in these sectors. This helps to explain why prices for broader wool used in interior textiles and, to some extent, merino cardings have been relatively better than prices for merino fleece wool in the past six months or more.

These results were confirmed by sentiment among delegates at the IWTO Congress, with the Chinese delegates noting that, in their view, excess stocks were a particular concern.

Looking ahead, the Survey results point to a rebound in production activity levels in the second half of 2014 in all sectors (the shaded area of figure 1). Furthermore, Survey respondents expect the excess stocks to be cleared and the stock position to return to ‘normal’.

The Current Situation and Short Term Outlook for the Global Wool Industry

Chris Wilcox gives insights to the drivers of demand, from retail back through the wool textile industry, and trends in the production of wool. His presentation given at the 83rd IWTO Congress 2014 reports on the outlook for economic trends, market developments and the impact on the wool textile industry.

Click here to see Chris' IWTO presentation

What does this mean?

The weak raw wool demand at auction and softer wool prices in the past six months can be traced directly to the tough business conditions within the wool textile industry at the end of 2013, notably garment making, weaving and spinning.

A solid rebound in business conditions in all sectors of the wool textile industry is expected in the second half of 2014. This positive outlook augurs well for an improvement in raw wool demand in the second half of 2014 and into 2015, particularly if clothing retailer orders pick up. However, the timing of the improvement will depend on excess stocks within each stage of the wool textile industry being cleared.

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