Encouraging news for wool in 2010

Even though wool prices pulled back in the last week of January, all micron price guides are still well ahead of the close before Christmas in both A$ and in US$. And the latest on the outlook for the world economy and relative prices of wool to competing fibres is encouraging. according to the NCWSBA's Executive Director.

The International Monetary Fund releasing its new, more positive forecasts for the world economy in 2010 on 26th January. It now predicts that the world economy will grow by 3.9% in 2010 and 4.3% in 2011. This compares with a FALL in the world economy by an estimated 0.8% in 2009. The new forecasts are a significant upward revision from the IMF’s forecasts in both  in October 2009 and April 2009, when its forecasts for 2010 were 3.1% and just 1.9% respectively.

This continued strengthening in the world economy is good news for wool, as purchases of wool clothing in the major retail markets (China, Japan, the US, the UK, Italy, Germany, South Korea and France) depends on good economic growth to encourage consumers to spend. It is the major driver of demand for wool. The latest IMF forecasts point to growth in all of these countries, although the forecasts for Europe are only very moderate.

Another factor that is important in the demand for wool, and in particular wool of 20-25 microns, is the relative price between wool and cotton, polyester and acrylic. Since the low point in early March 2009, wool prices have risen by around 80% in US$ terms and are challenging the 20 year highs set in 2007. This has led some people to express concern that wool is losing its competitiveness to other fibres.

While the price for wool has lifted compared with the main competing fibres, the current price relativities are not outside the levels seen in the past 15 years. They remain well below the peak seen in 2002 and in 2007. This is because the prices for cotton, polyester and acrylic have also increased since March 2009. Cotton prices are up around 50% since early March 2009, polyester prices are up by around 25% and acrylic prices up by around 30%.

Even so, there will be substitution of wool by cotton, polyester and acrylic at these current price relativities. This is inevitable as the supply of wool has fallen to 80+ year lows while the supply of cotton, polyester and acrylic have all increased in the past ten years.

In summary, while there will be some substitution, current price levels are unlikely to be a significant inhibitor to further increases in demand for wool as the world economy recovers.