Demand from affluent Chinese shoppers drives growth in Australian wool sector

Australia’s wool sector looks poised to return to strong growth, driven by recordhigh prices and robust demand from increasingly affluent Chinese consumers, latest industry figures and analyses showed.

Scott Carmody, trade consultant for the nonprofit Australian Wool Innovation industry group, told the Xinhua News Agency that demand is the strongest in three to four decades, with “Chinese influence on the market exerting extreme upward pressure on wool prices in Australia.”

In US dollar terms, wool prices are not as high as they were about five years ago, but a weaker Australian dollar means that Australian producers are getting paid more in the local currency, he said.

Chinese wool buyers were paying about $14 to $15 a kilogram back then, but the price is now about $12.5, industry figures showed.

“The record-high prices that everybody’s talking about is in Australian-dollar terms. That’s very important for our wool growers because that’s what they like,” said Carmody.

“China has the capacity to push the market even higher as long as demand remains strong. And what we’re seeing at the retail levels is that there’s been so much wool at retail and many different products that people are seeing the capacity for the market to hold at these levels or even improve.”

Australia is the world’s dominant wool producer, with its top-grade Merino sheep helping fuel annual exports of about A$3 billion ($2.28 billion).

Chinese demand makes up more than 70 percent of that market, with its businesses turning the raw material into an increasingly wide variety of products such as sportswear and shoes beyond traditional garments, said Carmody.

“China remains our most important customer. Almost 100 percent of what it bought was manufactured and re-exported because the Chinese consumers could not afford to pay the premium price for wool. That was probably 15 to 20 years ago. Today, about 60 percent of wool is staying in China for Chinese consumption. The affluence that has grown very rapidly in China has helped wool prices,” he said.

Matt Dalgleish, wool market analyst for market analysis group Mecardo, told Xinhua the Chinese market remains “incredibly important” for Australian wool.

At the same time, the contraction of Australian wool suppliers in the past few years has affected the higher prices and more producers switching back to the industry to tap the current growth might affect its development.

There is also a limit to what foreign buyers are prepared to pay for and the danger of wool becoming a “niche” product if it gets too costly, said Dalgleish.