Wool prices hold comparatively well to other commodities

Data shows that the price of wool has held up comparatively well according to AWI Market Intelligence report. While the AWEX EMI is down 476 AU cents/kg clean (34%), trade lamb is down 242 AU cents/kg cwt (37%), cotton down 151 US cents/lb (65%), and iron ore down 90 AU dollars/ton (48%). Expressed as an average price level over the period compared to the individual peaks, lamb is down 23%, cotton down 49%, iron ore 22%, and wool 15%.

On the positive side the report points out that recently passed legislation in India to open the retail market to foreign competition will be positive for wool. Despite political pressure and major strikes across the country, the Indian parliament passed the controversial Foreign Direct Investment (FDI) reform policy on 20th September. This policy will in the long-term provide a major stimulus of India’s retail sector and clothing brand space by allowing foreign companies to hold majority stakes in multi-brand retail outlets.

Immediate beneficiaries will be the major ‘hypermarket’ chains, such as Wal-Mart, but in the longer-term, the overall impact will be similar to that seen already in other BRIC nations such as China, where consumers have been provided access to a wider array of higher quality international products – especially in the premium apparel brand space, where Australian wool generally resides.

Also on a positive note for Europe, the German Constitutional Court dismissed a constitutional challenge against the legality of the Eurozone’s new bailout fund (12 September), the European Stability Mechanism (ESM). Had the court ruled against the ESM, the viability of the fund, which is crucial to providing supports to weak economies on Europe’s periphery, would have been thrown into doubt. Also, on 6th September, the European Central Bank (ECB) announced that it was prepared to purchase the government bonds of countries facing soaring yields owing to a loss of market confidence. This has already had the effect of reducing Spanish and Italian borrowing costs (as measured by sovereign bond yields) since the announcement – with for example, Spanish 2-year bonds dropping 4% since the announcement.