Insights August 2020
Insights August 2020
- The Australian wool market suffered significant losses during the first week of auctions post the three-week recess.
- While apparel sales in China have recovered to be level with year ago levels, the European Union and the United Kingdom are lagging well behind sales at the same point last year.
- Consumer confidence will need to see a marked increase, globally, before a significant bounce is seen in Australian wool values.
Despite the Australian Wool Production Forecasting Committee predicting that the 2020/21 season will see production decline by 1.7 per cent, a total two million bales of wool are expected to come online for the next season which includes the stocks held over from the 2019/20 season.
Low wool prices in comparison to lamb prices continue to incentivise a greater swing to meat producing sheep away from merino sheep and could see a continued decline in the national flock despite the improving seasonal conditions.
Demand for Australian wool over the coming year, however, remains to be the key question for the market in the near future as COVID-19 continues to weigh on economic sentiment, apparel sales and in turn the wool market.
Apparel sales in the Northern Hemisphere have begun to see a recovery following the significant falls during the COVID-19 pandemic, with improvements across China, the United States (US) and European Union (EU).
While United Kingdom (UK) retail apparel sales remain 33 per cent lower than this time last year, as the country reopens after pandemic imposed shut downs, sales in the US have recovered to be 24 per cent lower than June last year after being 86 per cent down year-on-year in April. Online sales have also helped pick up some of the slack.
China has fared better than some countries in recovery from the virus, with apparel sales improving to be on par with year ago levels. Half of the wool that is exported to this market is sold in China, this will aid in reviving some demand for Australian wool. However, demand for apparel in key markets including the UK and US continues to contribute to softer overall sentiment. Further declining Chinese consumer confidence following a second wave of COVID-19 in Beijing and geopolitical tension with the US, may slow the recovery in Chinese demand for Australian wool.
Whilst an overall recovery in apparel sales in some parts of the world is encouraging, it includes the sales of clothing made from other fibres. It is expected that cheaper synthetic fibre clothing items may be accounting for a larger amount of the sales in this depressed economic environment.
Consumer confidence will need to see a sustained increase from current levels in the major markets in order to support a significant recovery in wool values.
Sources: Australian Wool Exchange, Australian Wool Testing Authority