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Insights May 2020

11 May 2020 |Wool
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Insights May 2020

11 May 2020 |Wool
The May update provides an analysis of production and pricing trends for Australian wool producers.

Overview

  • Australian wool prices are expected to remain under pressure for the foreseeable future, as COVID-19 continues to impact processing mills and weighs on underlying demand for woollen products.
  • Some COVID-19 impacts are starting to ease with wool auctions reopening in New Zealand and South Africa, and processing facilities reopening in China.
  • The Australian wool clip is expected to fall 6 per cent across the 2019/20 season, however, offer volumes for the season-to-date are 10.2 per cent lower versus the prior corresponding period as sellers hold wool back from
    auction.

Australian wool values continue to feel the pressure of COVID-19, as the weight of the pandemic on global economic confidence flows through to demand for woollen products. The good quality, stylish wool clips in the market have remained relatively firm, while cardings and the lower quality, low strength wool have felt most of the weakness. An Australian dollar that has bounced by more than 10 per cent off the lows in March has also worked against values.

Global production is expected to continue to decline, according to updated International Wool Textile Organisation (IWTO) figures, however this reduction was driven by drought induced decline in production in Australia. In the near term, the resumption of wool auctions in New Zealand and South Africa, albeit with social distancing measures in place, will increase the volume of supply in international markets over the coming months.

Improved seasonal conditions across most of the east coast of Australia will help prevent stock losses and boost joining rates, however this will not  translate into an increase in wool production. Australian wool production is
forecast to fall approximately 6 per cent against last season.

In addition to a smaller national clip, supply to Australian wool auctions has been greatly reduced in recent weeks, with volume offered for the season-to-date down 10.2 per cent versus the prior corresponding period. Large volumes
of the Australian wool clip are expected to continue to be withheld from the market until demand noticeably returns.

The big question in the market over the coming months will be around when demand will return and where it will come from. Processing mills in China have reopened but, with minimal demand for the end products and no uniform orders on the horizon, mills are minimising throughput in an effort to control stock levels.

Additionally, many processing facilities in South America, the Middle East and India remain shut down in response to COVID-19, and whilst there is some cautious reopening occurring in Europe, these are unlikely to cause a considerable uptick in demand in the near term. 

Furthermore, even if these mills reopen, a considerable increase in consumer sentiment will be required before discretionary spending on items such as clothing shows any significant recovery.

Wool prices are likely to remain under pressure for foreseeable future, and any improvement in the outlook will be dependent on the combination of the reopening of mills and stabilisation of global economic sentiment.

woolmay20-graph1.gif   woolmay20-graph2.gif

Sources: Australian Wool Exchange, Australian Wool Testing Authority

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