Australian wool prices – looking to China (Australian)

The downslide in wool prices has continued in most wool markets around the world for both crossbred and fine wools. Although there is no improvement in economic conditions in major wool consuming countries and this situation is not expected to improve in the foreseeable months, nevertheless market players and analysts suggest that prices will stabilize, particularly for Australian wool.

‘Considering that we are coming from a 15 year high the market has been expecting a correction from higher prices for some time, but perhaps it did not expect such a sever correction’, says James Thomson of Australian Merino, an Australian wool export company that exports wool to both Asian and European markets.

According to Mr Thomson the wool market, like any commodity market, will often over react after prices fall, but he believes that prices will stabilize, although he does not foresee prices rising due to weak demand from buyers in China.

For prices to increase Chinese wool buyers will need to come back strongly into the market says Mr Thomson. But for this to happen Chinese exports must increase considerably and this is unlikely to happen soon with the present conditions in Europe and the US. ‘Domestic consumption in China is not enough to boost wool prices. As soon as we see China buying wool for export orders we will see wool prices improve’, says Mr Thomson.

There are mixed reports coming from China regarding how much stock is available there at present. Some reports suggest that local Chinese companies are dumping wool at lower prices. On the one hand some believe that the bigger Chinese topmakers do not have much stock on hand, however others suggest that considerable stockpiles of wooltops that could take some time to clear.

In its quarterly Wool Economic Focus Landmark points out that economic conditions in major wool consuming countries are ‘subdued but considerably better than in 2009′. The main markets for apparel and wool in Western European include UK, Germany, Italy and France. These four countries represent 65% of Western Europe’s total sales. It is expected that Italy and France will slowly recover from their economic slump whereas UK and Germany are expected to grow on average 3.1% and 2.4% respectively.

As world wool supply is not expected to increase this will inevitably support wool prices, even taking subdued demand into account. The Landmark report also points out that around 1/3 of annual wool supplies come to the market during September – November and this could put additional pressure on wool prices in the coming months.