Rewned optimism for the Australian wool industry

There is a sense of renewed optimism for the Australian wool industry, according to the NCWSBA's Executive Director. Better economic growth in major consuming countries should bring a pick up in demand for wool clothing and for Australian wool.

The new year and new decade opens with, I think, a sense of renewed optimism for the Australian wool industry. Low supply for most wool used in apparel has helped support prices during the past 2 years as the storm caused by the Global Financial Crisis has battered consumers and, as a result, demand for wool clothing. Now, the new decade dawns with hope that the worst is past us and, while the economic recovery will probably be slow, I think we will see a pick-up in retail demand for wool clothing in the major markets this year.
The latest forecasts of quarterly growth in private consumption (ie spending by consumers) in the major wool consuming markets show that there is a moderate recovery expected in all the major consuming markets. The recovery in demand in Japan and the UK could be slow, given that both countries saw the deepest recession over the past 18 months. As well, the recovery in growth in private consumption in the Euro Zone is predicted to be weak over the next 18 months. In contrast, the recovery in the US is predicted to be more robust, but still relatively weak (compared with the growth pre-GFC). The figures for China (which are for economic growth as private consumption statistics are not available for China), also shows very solid growth predicted over the next 18 months.
While the economic recovery could be weak, it is still a good sign for wool. As supply is very low around the world, any recovery in demand at retail will inevitably push prices higher. While auction prices have already been sustained by this low supply, my analysis suggests that prices have also risen since October due to better demand (perhaps by processors who want to secure supply anticipating a pick-up in demand at retail in 2010). This is indicated by the rise in prices which is above what might be expected due to the low supply. As well, the latest wool export data shows a lift in both volume and value terms (see below for more detail).  I think we probably will see this rise in wool prices continue for the rest of the 2009/10 season, before it levels off sometime in 2010/11.
On the issue of supply, the latest AWTA test results (for December) are interesting. Tests in December were up year-on-year by almost 4%, with a 28% leap in Tasmania and a 10% lift in NSW. Victoria and South Australia also recorded good rises of 7% and 8% respectively, while WA was down 10% and Queensland down 14%. As a result of the December figures, AWTA tests in the first half of the season are down 5.5% across Australia. This is a smaller drop than the latest forecast from the Wool Production Forecasting Committee (9.3%). If the Forecasting Committee is correct, then the next six months could see a sharp drop in wool tested compared with the January to June 2008 period. Details can be seen at http://www.awta.com.au/Documents/Statistics/KTD/PDF/2009-2010/KTD_2009_12.pdf.
On the demand side, the ABS has released the latest wool export figures for Australia for November. This data shows that demand did pick up in November. The export volumes for the month were up by 15.5% for the month and, more importantly, the value of exports from Australia were up by7.6% in November compared with November 2008. This is the first time in almost two years that the value of wool exports in a month has increased compared with the year earlier level. The last time was January 2008, before the GFC hit. It is also the first month since June 2007 that both the volume and value of wool exports have lifted at the same time.

Executive Director, NCWSBA
8th January 2010