RECENT wool price levels are real, sustainable and not a “short term blip”, Australian Wool Innovation said this week.
Wool prices reached their highest US dollar level in 35 years last Wednesday with the Eastern market Indicator peaking at 1242 cents a kilogram clean, only to suffer a drop on Thursday to finish at 1191 a kg.
AWI’s market intelligence and trade reporting manager Dr Paul Swan said the Thursday price drop was only a fluctuation. The Western market Indicator decreased five cents to finish the week at 1118 cents a kg clean.
“The critical issues are the longer term trends and the fundamental drivers.
“I believe the fundamentals of the market are very, very positive and they are medium to long term – two years plus,” Dr Swan said.
“It will take years for production to recover to any substantial degree.
“Even if prices remain at present levels it will take years for production to increase, particularly against the backdrop of very high sheep meat prices,” he said.
“I believe the fundamentals are such that this is not going to be a little short term blip – it’s a culmination of a slow building of demand against a backdrop of a rundown in our stocks.”
The 1242 cent point was at the 99 percentile level for AUD prices in the last 35 years – with only nine months when higher average prices occurred in the Reserve Price Scheme days of February 1988 to January 1989, Dr Swan said.
“This is the first real substantive peak that hasn’t been associated with a price regulation scheme in the market place – it’s demand and supply.
“Our overall view is that we have very, strong evidence now that this is the collision of really, really tight global supply of the fibre with strong demand,” Dr Swan said.
He said it was premature to claim plaudits for what the market was doing now, though AWI’s past programs have played a part and its marketing programs were yet to have their full impact on the market.
Dr Swan said the current Northern Hemisphere demand trend was genuine and “genuine trends tend to last 18-24 months at least”.
He said Australian wool prices had exceeded pre-Global Financial Crisis levels, though a number of key retail markets – the United Kingdom, Ireland, Portugal and Spain - were yet to completely recover from the GFC.
"The fact that we have over the last decade seen the emergence of a demand superpower in China really augurs well for the future.”
AWI chief executive officer Stuart McCullough said the current wool prices were sustainable.
“We know that wool is in fashion in the Northern Hemisphere.”
But fashion alone was not the only demand driver, he said.
“The other driver that we have is the ‘LOHAS’ (lifestyle of health and sustainability) consumer who is very keen to buy clean, green product and feel good at the cash register.”
The third driver is Chinese domestic affluence which was not going to slow down, he said.
“We’ve got limited supply and in some ways it is a bit of a perfect storm.
“We believe that wool should be at this level or higher given the numbers of sheep in Australia.”