100 happy weeks
THE Australian wool market is in a “supercycle”, having been on the rise for 100 weeks.
But a looming trade war between the United States and China could be its demise.
In a major win for growers that have stuck with the fibre, the benchmark Eastern Market Indicator has reached record highs 15 times this selling season, most recently last month when it hit 1834c/kg.
According to the Australian Wool Exchange, $2.5 billion worth of wool has been sold this season, and the EMI sits 238c/kg above the same time last year. The Australian Bureau of Agricultural and Resource Economics expects the benchmark indicator to average 15 per cent higher year onyear at 1630c/kg for 2017-2018.
National Council of Wool Selling Brokers of Australia executive director Chris Wilcox said since the end of the reserve-price scheme in 1991, the wool market had typically gone through a seven-month cycle from bottom to peak.
But in that time there had also been supercycles where prices sustained high levels, and Mr Wilcox said it was safe to say the industry was experiencing its fifth supercycle.
“It varies as to why we have a supercycle – in 2010 and 2011 it was down to cotton prices going through the roof, cotton prices went to 100-year-plus highs,” he said.
“This time around we are seeing very good economic growth in the US and the EU, as both of those economies finally recover from the global financial crisis, so we have seen all commodities rise, including wool, which is also seeing less supply.
“It has been going for 100 weeks now, longer than any other supercycle we’ve had, except for one in the late 1980s which went for 111 weeks.”
Mr Wilcox said while the wool price would “eventually tip over and head back down”, after past supercycles prices had settled at levels that were higher than before the cycle.
“Part of that is the lower production of Merino wool we have seen, but I think we are also seeing some sustained improved demand of some segments of retail,” he said.
Mr Wilcox said that when supercycles hit a retreat phase it was typically caused by external factors, such as the 1980s supercycle ending in the collapse of the Soviet Union and the Tiananmen Square incident in 1989.
This time around he holds real fears that any trade war between the US and China could be the trigger.
“While trade restrictions are unlikely to involve any product that has wool in it, the issue with trade wars is no one wins,” he said.
“If the US economy pulls back that will have an impact on wool prices. That is why we have seen stock markets in the US and Australia fall.”
Senior sales director for Italian wool spinner Tollegno, Steve Gronich, supplies wool to major retailers and brands in the US. He told Australian Wool Innovation’s February podcast that Australia was finally starting to educate not just the US, but the world, on why it should use wool.
“The North American market is really absorbing all the information you are giving us about the product, and we are finally starting to understand that wool is probably the most technical fibre out there — it took the US market 100 years to realise that,” he said.
Mr Gronich said because wool was hitting the athleisure market, it was breaking out of the traditional uses of suiting and sweaters.
“I never thought I would see Nike and Adidas using wool, but it is happening.” Wool Report returns next week when wool sales resume