It might be a cracking season for wool producers but it has been all downhill for the Australian market in recent weeks.
Key points:
- Australian wool prices have fallen for the fifth consecutive week
- The last time the Eastern Market Indicator rose was late June
- The drop is being driven by a decline in demand from Europe and China
Since June the Eastern Market Indicator (EMI) — generally considered to be the best measure of the health of the market — has fallen almost 100 cents from $14.14 per kilogram down to $13.30.
It is the fifth straight week of falling prices and it has been 11 weeks since the market has had any increase at all.
While it is normal for the market to slump at this time of year, a wave of global factors are driving the price down.
So rather than a regular case of spring jitters, could this be the start of a more pronounced slide?
The year so far
At the start of the year the Australian wool market was riding high.
In February, the EMI was soaring at $14.49/kg, the market’s highest point since the start of the pandemic.
With COVID restrictions easing and a return to the office fuelling a boom in suit production, it looked like the best was yet to come.
But since June demand has been sliding.
Independent Commodity Services market analyst Andrew Woods said it was particularly bad for Australia’s two largest trading partners, China and Europe.
“It’s being driven by deteriorating conditions in the Northern Hemisphere economies,” he said.
“China has a few problems — one is COVID and lockdowns, which has seriously hurt domestic demand for woollen apparel.
“That’s happened at the same time as export demand [for Chinese goods] from Europe and North America has dropped off.”
The trouble also spills over to the luxury mills of Northern Italy, where the war in Ukraine is driving skyrocketing power prices.
Adelaide-based Michelle Wool chief executive Steven Read has just returned from a tour of the country.
“It’s a monstrous increase in energy prices — it’s somewhere [between] 600 to 800 per cent more expensive and it’s constantly moving,” he said.
“Some dye houses are running part time, but the good news is they’re still ordering and running at full capacity at the moment.
“The big fear is that when winter comes the domestic demand for energy will increase, which might crowd out the factories.”
Not all wool is created equal
Despite suffering massive falls the finer quality wools are still selling at a premium to the rest of the market.
Cooma-based wool broker Gordon Litchfield believed the market average was being dragged down by record low demand for coarse wool.
“We’ve still got a significant gap between the 16.5 and 18 of about 940 to 950 cents, so the fine wool premium is still quite relevant,” he said.
“As we slip down the microns and we get all the way to the bottom with the 28 micron, we’re now at a 22-year low.”
“So if you throw that in the mix you haven’t got a very attractive EMI, nor have you got something that’s all that representative of the real situation.”
Mr Litchfield said there were large price differences for quality, even between wools of the same micron.
“The difference even for the same micron size can be 200-300 cents from a very good spec wool, even down just to a medium spec,” he said.
“A lot of that is the return of the Italians to the market after COVID — they’re now starting to really pick out the good lots.”
The situation is especially frustrating for wool producers like Jeremy Phillips, who runs 11,000 ultra and superfine sheep on his property at Springfield in Victoria’s Macedon Ranges.
“I was lucky enough to lock in quite a bit of it under contract, which gives you some assurance of price,” he said.
“But it’s very disappointing, when we’ve had a really good clip and the wool is fantastic, to see the market coming back the way it is.
“Fingers crossed things stabilise overseas and we get back to a point where there’s more confidence in the industry.”
Glimmers of hope
So will things stabilise?
The Australian Wool Network’s Victorian manager, Kelvin Shelly said the outlook internationally was not great, but there were some upsides.
“There’s not a lot of positive news coming out, especially of Europe and some of these countries at the moment, for those prices to turnaround anytime soon,” he said.
“I’m also worried about the high amount of wool being [stored] at the moment, because it has to come back on to the market at some stage.
“The good news is things have turned around in the shipping industry.
“Exporters are moving shipping containers and wool quicker and at more cost effective prices.
“It’s still higher than pre-COVID, but better than what they were.”
