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Insights June 2022 | Wool

16 June 2022 |Wool
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Insights June 2022 | Wool

16 June 2022 |Wool
The June update provides an analysis of production and pricing trends for Australian wool producers.

Commodity Overview:

  • The Eastern Market Indicator continued to increase in the last month and reached its highest levels since February.
  • Annual wool production is set to reach its largest volume in four years.
  • Global inflation is becoming a growing risk to consumer demand for retail goods.

The Australian Wool Testing Authority had tested 311,000 tonnes of greasy wool by the end of May. This was 15,000 tonnes more than the same time last year. Wool production is very likely to go beyond the Australian Wool Production Forecasting Committee’s forecast total of 321,000 tonnes by the end of the financial year. In early May total auction sales topped $2 billion which was nine weeks earlier than last year. As the end of the selling year approaches the market generally undergoes a tapering of offerings due to a slowdown in shearing. However, relatively strong supply has continued later than usual with more than 45,000 bales being offered in week 47 of the selling season. That number has now dwindled to 31,000 bales in week 49 marking the end of the selling season.

The Australian dollar tempered throughout May following the highs of 75USc in April. The dollar fell as low as 69USc in mid-May driving demand for Australian exports. This fluctuation contributed to price gains across the Micron Price Guides in early May.  As prices receded towards the end of May the pass in rate rose to 13 per cent and Sydney had its lowest offering since October 2020 with 8,500 bales. Key quality metrics such as vegetable matter (VM), strength and style continue to be a key driver of price increases. However, in the last weeks of May only 34 per cent of wool offerings had VM levels of less than one per cent. VM levels and wool strength were integral to the price gains in 18 micron lots during mid-May which grew by up to 80 cents in some sales. The Eastern Market Indicator (EMI) has finished the second week of June in a stronger position at 1,438 cents.

The COVID-19 lockdowns in Shanghai have been lifted which will allow wool processing mills to increase capacity. There remains the prospect of further lockdowns as China continues to maintain a zero-covid policy. The reduced domestic demand for wool has driven some Chinese firms to increase international sales of processed wool. Export demand may face some pressure with rising energy prices and inflation weighing on most economies. An economic slowdown in China will only be part of a wider slowdown in demand for retail goods.

 

Sources: Australian Wool Exchange, Australian Wool Testing Authority

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