Obviously the Covid-19 pandemic has had a huge impact on demand for wool, as it has on demand for many commodities and raw materials, as well as products around the world. The market for wool used in clothing has been hit by a double whammy over the past 18 months or so. First came the US-China trade war (remember that?), which triggered a sharp fall in Australian wool prices from the supercycle peak. There was a resultant 24% drop in the EMI in A$ terms from the supercycle peak in August 2018 to January 2020. The fall was more in US$, Euro and Renminbi, down by around 28%.
It appeared that the downturn in wool prices had stabilised by the start of 2020, but then the spread of Covid-19 started in China. We now have the global pandemic and the associated shut-down of swathes of the global economy. The Economist magazine is calling it the 90% economy. This has hit raw wool demand hard, with the EMI falling by 21% in A$ terms since the end of January to this week. It is down by between 22% and 23% in US$, Euro and Renminbi terms.
This double whammy is the most severe challenge that the wool industry has faced for many years. The current A$ level of the EMI is below the long-term trend but remains well above the most recent low points during the Euro debt crisis and well above the low during the Global Financial Crisis (GFC). In contrast, the current US$ level of the EMI at 801 UScents/kg, is well below the long-term trend and below the low plumbed in 2016, but above the 461 USc/kg level during the Global Financial Crisis.
Further details, including charts which show ups and downs of the EMI in A$ terms and in US$ terms since the start of the 1990s along with the major global macro-events that have influenced prices, are provided in the full edition of this week’s NCWSBA Weekly Newsletter. Available to NCWSBA members.