Wool Price in Australia Climbs as China Demand Rebounds
Wool Price in Australia Jumps as China Scrambles to Boost Buying
(Bloomberg) -- Wool prices in Australia have surged more than 30% from a September low, with Chinese processors boosting purchases to meet an expected jump in apparel demand after a coronavirus-related slump.
While Australian barley, wine, cotton and beef exporters are feeling the pain of tariffs, bans and trade investigations by China as political tensions between the countries remain high, demand for wool from its biggest export market is recovering.
Mill shutdowns in China, along with weaker demand for textiles, had “turbo charged” a downturn in the market earlier in the year, Robert Herrmann, managing director at adviser Mecardo, said by phone.
There’s been a fundamental change in recent weeks as mills and manufacturers prepare for an anticipated increase in consumer spending after pandemic lockdowns, Herrmann said. Wool purchases typically need a long lead time, and there have been reports of Chinese mills receiving more orders from downstream, he added.
Prices Rebound
The benchmark Eastern Market Indicator wool price slumped 47% in Australian dollar terms to A$8.58 per kilogram between the first week of auctions in January and the first week of September, as demand shriveled due to global Covid-19 lockdowns.
It’s since recovered about 30%, including a 9.3% gain in the week to October 16, to A$11.17 per kilogram, according to Australian Wool Innovation.
“On the back of fresh forward contract opportunities into China, traders chased the market hard forcing swift and imposing price increases on all sectors,” AWI said of last week’s rise. “The magnitude of the gains surprised almost all.”
Australia typically exports about 80% of its greasy, or untreated, wool to China, government forecaster Abares said in September. That figure surged to 96% in the June quarter, amid Covid-19-related disruption in export markets, particularly in Europe.
After a tough start to the year, China’s recent buying has been “an enormous positive,” said Mark Symes, southern wool manager at G. Schneider Australia, speaking on an Oct. 16 podcast with Mecardo.
China “has pretty much opened up, back to normal as of August this year,” Symes said. “We’ve seen enormous support from the Chinese marketplace. In recent times 92% of our wool has been heading into China.”
Still, the prospect of strict Covid-related lockdowns in the EU and consequently lower apparel sales are likely to limit price upside, said Dennis Voznesenski, Rabobank associate analyst, in the bank’s October agribusiness report.
“Lower sales and stock backlog would prompt European retailers to reduce or pushback future apparel orders, and consequently dampen the prices offered for wool by Chinese processors,” he said.
Further lockdowns in Europe would be negative in the short term but pent up consumer demand should cause the market to rebound strongly after restrictions ease, Mecardo’s Herrmann said.
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