Insights April 2020
Insights April 2020
This edition of the Rural Bank Insights Update aims to provide a
concise summary of Coronavirus’ impact on Australian agriculture as it stands today.
The report specifically addresses your questions around input supplies, underlying demand for food and fibre, and the impact on the supply chain across the commodity segments.
- Weak global economic sentiment, combined with phased shutdowns of processing facilities have collectively weighed on the Australian wool market.
- China is believed to be moving back to full processing capacity, however reductions in discretionary spending is negatively impacting demand for woollen garments.
- As the virus spreads globally, even as China recovers, the global supply chain for wool and woollen garments is grinding to a halt as other countries face shutdowns of their own.
- Both New Zealand and South African wool auctions have been shut down for at least 21 days, leaving Australia in an advantageous position as the only country that is exporting wool at present. However, demand for Australian wool is expected to be weak as virus control measures come into effect globally.
- Large swings in the Australian dollar against the US dollar has also added to volatility in the Australian wool market
- China accounted for 76 per cent of Australian wool exports in 2019.
- Chinese processing plants either closed completely or ran at a fraction of usual capacity during the peak of the coronavirus outbreak in China. This had a significant impact on demand and pricing for Australian wool.
- The return of Chinese buyers to Australian wool auctions will be supportive Australian wool values.
- Whilst Chinese wool processors are now believed to be at full production, except those in Hubei province, demand for woollen garments remains subdued, reflecting lower overall discretionary spending.
- Even as our largest wool consumer is returning to full production, if the demand in countries they are sending their textiles to is low there will be significant flow on effects to the Australian wool market, which was seen in the week 40 auctions.
- India accounted for 6 per cent of Australian wool exports in 2019.
- With the government imposing a 21-day shutdown in late March, the economy has ground to a halt which is likely to greatly affect demand for wool in India.
- Even if the virus comes under control, demand in the countries in which India sends woollen garments is likely to
be significantly subdued as a result of the economic effects of the virus.
- Italy accounted for five percent of Australian wool exports in 2019.
- Italy plays an important role in the high quality, fine micron end of the Australian wool market.
- The shutdown of Italian processors and top makers in order to limit the spread of Coronavirus across Italy and Europe more broadly has significantly impacted the fine end of the Australian wool market.
- The resumption of processing in Italy, and some stabilising of the local economy will be important factors to a wool price recovery.
- However, similar to the other export destinations for Australian wool, demand for Italian produced woollen clothing is expected to be subdued due to disruptions in the supply chain and the adverse economic effects of
the spread of Coronavirus, which will reduce demand for Australian wool.
Source: Australian Wool Exchange, Australian Wool Testing Authority
As most of the wool produced in Australia is exported, the disruption to the global supply chain, for both wool processing and woollen garments, has flowed heavily into Australian wool values.