AS wool continues its record-breaking run, jumping more than 100 cents in the past couple of weeks and bursting through the magical 2000c barrier in WA and Sydney, the fibre’s force is being given super cycle status.
Speaking at the 87th International Wool Textile Organisation (IWTO) annual congress in Kowloon, Hong Kong, recently National Council of Wool Selling Brokers Australia (NCWSBA) executive director and IWTO market intelligence committee chairman Chris Wilcox, a 25-year veteran of the industry, said not since the 1980s had the industry seen this sort of momentum.
“At that time we saw a monster super cycle,” Mr Wilcox said.
“In the 30 years since we have had three mini cycles (early to mid 90s, early 2000s and 2010-11) and are again now into another super cycle phase.”
Mr Wilcox said this had been fuelled by a substantial lift in wool prices.
“In 1988 we had 111 weeks of rising prices and are now currently at 113 weeks so we are entering new territory.
“In the late ‘80s Russia was a big buyer, US and European economies were growing and China entered the market, plus production was high.
“Now production is low, near 70 years low, so what is driving price?
“Firstly global wool production is flat, has been for 10 years and we are not seeing any signs of recovery.”
Mr Wilcox said Australia produced 272 million kilos clean in 2017 but that was expected to drop by 1pc this year and a further 1.2pc in 2019.
“Supply wins the battle, but demand wins the war,” he said.
“Stocks of wool are extraordinarily low and Australia and South Africa have been impacted by drought, prompting a sell-off of sheep, hence reduced production.
“The exception is broad wools where the price is languishing at nine-year lows following a significant drop in 2016.
“In New Zealand alone there are 200,000 bales of broad wool in stock, carried over from last year.”
The other softer spot was superfine and ultrafine wools which, although on the upward trend, were yet to surpass their highs of 2011.
Mr Wilcox said in general a rise in Merino wool prices coincided with a rise in oil and metal, but given economic growth around the world, Merino had done the best of all fibres on price.
But there was a gap between interior textile wool and apparel wool which was largely due to high sheep and lamb prices driven by demand for meat.
On the apparel wool front where the super cycle was in play, Mr Wilcox queried what happens to production after a super cycle.
“In the late ‘80s we saw production increase by 20pc but that was on the back of good seasonal conditions, the reserve price scheme still being in place and poor prices for sheep and lamb,” he said.
“That is not the case this year where we are seeing constraints on production through availability of land, poor seasonal conditions and high meat prices.”
Mr Wilcox said drivers of demand for wool included world economic growth, consumer taste, price of competing fibres (Merino is eight to nine times more expensive than synthetics for example) and marketing.
“We are seeing the best conditions for world synchronised growth since the GFC, particularly in China, Germany, France, Italy, USA, UK and Korea where a 20-year high in consumer confidence has engendered terrific conditions for the sale of product at retail level,” he said.
Mr Wilcox said a pre-congress survey involving 10 countries painted a very positive picture for wool with production activity levels for weaving, spinning, knitting and textiles at above average levels now and expected to further increase.
“And I think we are on the tip of the iceberg for broad wool improvement given higher raw wool demand especially from China,” he said.
Mr Wilcox said the export of wool products was down but there had been a big increase in woven wool garments.
“More wool is going into China, but less is being exported from that country reflecting an increase in local consumption,” he said.
Mr Wilcox said risks to global economic growth included rising interest rates, debt and credit risks in China, exchange rate volatility and potential for trade wars, although this had been substantially reduced given USA’s easing of the strength of tariffs against China.
Mr Wilcox said innovation and product development would be key for wool’s future especially for mid-micron and broad wools, but he believed the outlook was rosy for at least another 12 months.
p Wendy Gould was a guest of Australian Wool Innovation at the IWTO congress.