Downstream demand for wool as yet unaffected by supply slump

Low supplies fail to inject lustre into wool market

Sheep
Less wool for sale has failed to spur more global buyer demand, but the industry is prepared to take small steps to turn the market around - including encouraging consumers in the 'fast fashion' sector to buy more wool garments.

Less wool for sale has failed to spur more global buyer demand, but the industry is prepared to take small steps to turn the market around - including encouraging consumers in the 'fast fashion' sector to buy more wool garments.

Aa

Depsite wool supplies continuing to contract to mid-1990s levels, global demand remains flat.

Aa

Even with only a miniscule 15,800 bales being offered at national auctions last week, the Australian wool market was a luck-lustre affair.

Prices for superfine Merino fleece eased by 15 cents a kilogram and medium Merino values fell 50c/kg - dragged down by the poor quality selection that is continuing to make life difficult for all involved in the industry.

The new selling season (after the July recess) may challenge the market with increased volumes, but it will also hopefully bring better quality wools to the fore and allow buyers to put together containers within specifications.

Skirtings followed the lead of the fleece market last week and closed 40 to 50c/kg lower. Crossbreds were less affected in absolute terms, but prices still drifted 2-3 per cent down.

Cardings - seemingly the only active segment of the market at present - managed to hold ground and finish the week unchanged, although it was hardly something to crow about when the total volume of cardings was less than 1000 bales for the week.

Demand is what is sorely missing in this market, despite the extraordinary low level of supply currently being offered.

Without constant demand, buyers and processors are hesitating to buy more than a few bales of any particular type.

The jump in the wool price two weeks ago, at the time, looked good - but has since dissipated during the past two selling weeks.

If nothing else went awry, the trade could now be expected to step back in with a few small orders and push prices up again.

Back then, Beijing had a bit of an outbreak of coronavirus and this has sent another shudder through the Chinese processing and retail sector.

A quick, draconian lockdown may stifle this outbreak enough to illustrate that these virus flare-ups can be controlled and allow the recovery to continue.

As Commonwealth Bank of Australia analyst Tobin Gorey pointed out in his daily Agri Commodities report last week, the world is slowly coming to accept a more realistic assessment of COVID-19 recovery speed.

Some would have us believe that a 'V shaped' recovery was still possible, particularly the equity traders, but most have a more realistic view of the speed of recovery.

Acceptance that recovery - at whatever speed - will occur, despite some of the struggles still going on around the world, is positive news.

It will be messy, as Tobin Gorey points out, and with messy comes a bumpy ride for commodities as optimism waxes and wanes.

The greasy wool market is a perfect illustration of this bumpy ride as it tries to stand up and move forward on what is, hopefully, the bottom of the price range.

The International Textile Manufacturers Federation (ITMF) recently highlighted just how extended the textile chain is.

Fibres can be produced in one country, yarns spun in another, fabrics are woven or knitted yet in another country before the final garment is sewn and shipped across continents.

The textile chain is only as strong as the weakest link in it, the ITMF said in a statement about the coronavirus crisis.

The industry is obviously facing demand shocks due to lockdowns around the world, which have posed enormous challenges to the retail industry.

Passing the loss and pain to suppliers by cancelling orders cannot be the answer, the ITMF said in a recent Fibre2Fashion report.

Having a retailer cancel orders due to the lockdown in the USA, for example, causes reverberations all the way back along the chain to the Australian wool grower - as we are currently seeing.

There are not many 'old' orders being delivered without at least some form of renegotiation in delivery time or price of contract in the textile world.

The biggest volume occurs at the base of the fashion pyramid.

At the top, haute couture and luxury fashion houses are most able to weather the storm. They have bigger margins, a lesser footprint and - in most cases - a more resilient financial structure.

Below them, the so-called 'bridge brands' - diffusion lines and 'high street' retailers - are struggling to keep their heads above water.

While, at the base level, fast fashion and economy retailers have had their volumes slashed - and so the greatest waves flow back along the supply chain.

Although these larger categories may not set the fashion tone, or have fallen in love with wool - as they just borrow the trend from above - they do consume a large volume of generic fibre.

This demand, or more accurately the lack of it, is what is being felt in the market.

The highest level of the fashion industry is already looking ahead and deciding what the 'new normal' will mean for their business - and importantly still talking to their suppliers.

But the large volume, basic consumer manufacturer is still very much in panic mode.

Hundreds of stores are being axed in some of the largest name chains, and when a normal order runs to tens of thousands of garments, the effect on demand is significant.

At present, wool is 'competitively priced' when compared to other fibres and to its historical levels, so we do not now have the issue which started the cyclical downturn back in August 2018.

Yet in the current COVID-19 recovery phase, demand is yet to rebuild to any extent.

The odd uniform order in China, or a smattering of Chinese domestic demand for a few knitwear items, provides the odd spark.

But the pervading gloom is preventing all but the most optimistic from seeing a way forward.

The recovery will certainly not be a straight line, and it will be messy - as previously mentioned - but if we can just get a run of good news, we can actually build a bit of momentum.

It will not take a lot, and the industry is certainly prepared to take small steps. So, if everyone gets out there and buys a new woollen garment this week, we might actually turn this thing around.

Don't just grow it, wear it.

The story Downstream demand for wool as yet unaffected by supply slump first appeared on Farm Online.

Aa

Comments

From the front page

Sponsored by