Feast and Famine: The Situation and Prospects for the World Wool Market

Transcription

1 Feast and Famine: The Situation and Prospects for the World Wool Market Chris Wilcox Poimena Analysis and Chairman, Market Intelligence Committee of IWTO American Wool Council February 2018

2 Topics 1. Recent price trends 2. Global production and supply 3. Demand conditions 4. Summary and prospects

3 Feast for Fine Merino Wool; Famine for Broader Wool USc/kg 2,200 2,000 1,800 1,600 1,400 1,200 1, Australia and South Africa USc/kg New Zealand and the UK Aus 18um Sth Africa 21um Aus 28um UK - Broad NZ Broad Xbred Source: AWEX, BWMB, NZ Wool Services Prices to 25 th January 2018 NZ Broad crossbred wool is micron. The UK wool price is the British Wool Marketing Board Indicator.

4 Broad-based Price Rise for Commodities (US$ basis) Index: Jan 2016= All Items 70 Metals Food Oil Index: Jan 2016= Cotton 170 Polyester 160 NZ Broad wool 150 Aust 18um wool Source: The Economist metals and commodity prices US$ index; AWEX EMI in US$. Cotton Outlook for cotton and Mackenzie Wood PCI Fibres for polyester staple and acrylic Data to 25 th January 2018

5 Fine Merino Wool Price Ratio at Highs; Broad Wool Price Ratio at Lows US$ terms Ratio Synthetics Ratio Cotton micron 18 micron micron 21 micron 8 Broad Xbred 8 Broad Xbred Source: Note: AWEX, Cotton Outlook, PCI Fibres, CIRFS, Woolmark, Poimena Analysis, Wool Services International NZ Data to January 2018 For 18 micron and 21 micron wool it is Australian wool For Broad Xbred it is New Zealand broad wool and the ratio is against acrylic fibre

6 US cents/kg 1,600 1,400 1,200 1, World Economic Events and Wool Prices Australian Eastern Market Indicator World economic recovery, dead-cat bounce post-rps 706 Stockpile sold, supply squeeze trend 709 World economic recovery, cotton prices to records, very strong A$ Global Asian Financial Financial Crisis Crisis Double-faced woollen fabric mania Euro debt crisis Commodity prices rise superfine wool prices up 1400 Source: AWEX 2017/18 basis Data to 25 th January 2018

7 Merino Wool Price Supercycles Date Peak Price* Price change - start to peak* UScents Acents UScents Acents Weeks - start to peak Comments February 1986 to May (+162%) +925 (+140%) 111 Strong co-ordinated economic growth, Soviet Union buying, China begins, positive fashion styles April 1993 to March (+116%) +496 (+107%) 97 World economic recovery, post Reserve Price Scheme collapse bounce, China emerges November 2001 to January (+97%) +501 (+71%) 59 Last bale of the Australian wool stockpile sold kicks off price rise May 2010 to June (+109%) +564 (+65%) 57 Global economic recovery after GFC and cotton prices to 100+ year highs April 2016 to January (+60%) +586 (+48%) 91 Solid economic growth in US & EU, general commodity price rise. Constrained Merino wool production. * Based on the Australian Eastern Market Indicator, 2017/18 basis

8 Total World Production Stable But Broad Wool Production Rising 2016 total production 1,140.5 mkg clean 2017 total production 1,147.9 mkg clean 2018 total production 1,158.6 mkg clean Near 70 year lows mkg clean Apparel wool Interior textiles wool Stocks:Use ratio ~11% 400 Source: IWTO, Country statistics, Poimena Analysis Updated January 2018

9 Australia Dominates Global Merino Wool Production % share USA China CIS Spain Rest of world New Zealand Uruguay Australia Argentina South Africa Source: AWTA, NZWTA, CapeWools, FLA, estimates by Poimena Analysis

10 Australian Wool Production Remains Near Century Lows mkg greasy Forecast for 2017/ mkg 0 Source: Australian Bureau of Statistics, Australian Wool Production Forecasting Committee Based on a season = 2017/18

11 Consumer Confidence Lifts in the Major Wool Consuming Countries Index Jan 2008 = 100 Index Jan 2008 = US EU China Japan South Korea Source: The US Conference Board, the European Commission and Data to December 2017

12 Improving Clothing Retail Sales % change y-o-y Year to date* China +25.1% +17.7% +11.5% +10.8% +9.3% +7.0% +7.0% +7.8% USA +3.5% +0.5% +1.5% +2.1% +5.9% +2.0% +2.0% +12.3% Japan +3.2% -0.4% -0.7% -0.5% -2.3% -5.3% -5.3% -3.1% Germany +0.9% -0.3% +0.1% +1.3% +2.8% +1.9% +1.9% +2.7% UK +3.3% +1.5% +3.1% +5.2% +1.5% -2.5% -2.5% +6.4% Italy -1.1% -2.3% -2.1% -1.3% +0.8% +0.3% +0.4% +0.2% France +1.7% +0.6% +1.1% +1.2% +3.4% +2.8% +2.9% +3.4% South Korea +8.6% +3.2% +0.8% +1.6% +3.5% +4.2% +4.0% +2.6% Source: Government statistical bureaus. Notes: Value of retail sales. China is for retail sales of garments, hats, footwear and knitwear. Japan is for major department stores. Germany, Italy, France and South Korea is total retail sales. * To November for all countries except China and UK which is to December

13 Improving Furnishings and Interior Textiles Retail Sales % change y-o-y Year to date* China +32.8% +27.0% +21.0% +13.9% +16.1% +12.7% +12.7% +12.8% USA +9.6% +4.7% +6.6% -1.2% +6.5% +4.1% +4.8% +7.4% Japan -1.8% -1.8% -2.5% -1.8% -14.8% -19.2% -20.2% -8.4% Germany +0.9% -0.3% +0.1% +1.3% +2.8% +1.9% +1.9% +2.7% UK -22.1% +28.9% +14.5% -3.1% -29.3% -6.9% -6.9% +16.3% Italy -1.1% -2.3% -2.1% -1.3% +0.8% +0.3% +0.4% +0.2% France +1.7% +0.6% +1.1% +1.2% +3.4% +2.8% +2.9% +3.4% South Korea +8.6% +3.2% +0.8% +1.6% +3.5% +4.2% +4.0% +2.6% Source: Government statistical bureaus. Notes: Value of retail sales. UK is for retail sales of floorcoverings. China is for furnishings. Japan is sales of furnishings in department stores. US is personal consumption of carpets and other floor coverings Germany, Italy, France and South Korea is total retail sales. * To December for China and UK, to November for all other countries

14 US Imports of Wool Products Drops Value (% year-on-year change of 12 mma) % change y-o-y Clothing 25% Wool 20% Cotton Synthetics 15% 10% 5% 0% -5% -10% -15% % change y-o-y 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Interior textiles Wool Cotton Synthetics Source: OTEXA. Data to November 2017

15 China s Exports of Most Wool Products Decline (Calendar Year to November - % change year on year) % change y-o-y 60% Raw and Semi-processed Imports % change y-o-y 70% Wool Product Exports 50% 40% 30% 20% 10% 0% -10% % 50% 40% 30% 20% 10% % 0% -30% -10% -40% -20% Source: China Customs and China Wool Textile Association; US Department of Commerce Wool imports is for raw and semi-processed wool (including wool top)

16 Wool Imports by Major Processing Countries Calendar Year to November Other -1% Other Europe Czech Republic Germany Italy India China +2% -2% -5% -6% -2% % mkg greasy equiv. Note: Source: From the five major exporting countries (Australia, New Zealand, Argentina, Uruguay and South Africa Australian Bureau of Statistics, FLA, SUL, Capewools, Beef + Lamb NZ

17 Wool Export Volumes by Major Exporters 12 month rolling aggregate % change y-o-y 20% 15% 10% 5% 0% -5% -10% % change y-o-y 60% 40% 20% 0% Argentina South Africa Uruguay -15% -20% -25% Australia New Zealand Total -20% -40% Source: Australian Bureau of Statistics, FLA, SUL, Capewools, NZ Beef + Lamb Data to November 2017

18 Summary of Drivers Merino 1. Low production of finer wool 2. Virtually no stocks left 3. Increased raw wool demand, notably from China 4. Higher economic growth leading to upturn in commodity prices (including Merino wool) 5. High consumer confidence and higher clothing retail sales growth 6. Increased use of Merino wool in active and leisurewear? BUT 1. High price relativity for Merino wool against competing fibres 2. Lower imports of wool clothing by US 3. Are pipeline stocks growing? Broad Wool 1. Increased production of broader wool 2. High stocks held in New Zealand 3. Raw wool demand from China fell in 2016/17 4. Substitution of broad wool by acrylic and nylon? 5. Slowdown in use of broad wool in apparel products in China? 6. Patchy retail sales for furnishings 7. Trade in wool carpets falls BUT 1. Broad Crossbred wool price relativity at lows 2. High consumer confidence in key countries 3. New style knitting products using broad wool in China

19 Prospects for 2018 Merino wool prices at highs, but could be near a cyclical peak Broad wool prices at the bottom? Longer term demand trends and prospects positive for Merino wool Product development will be key for broad wool Will it be feast or famine?

20 Merino Wool Price Supercycles the Downside Date Price change peak to low* Low Price* UScents Acents UScents Acents Weeks peak to low Comments May 1988 to March (-55%) (-66%) Collapse of the Reserve Price Scheme, Soviet Union falls apart, Tiananmen Square March 1995 to May (-33%) -343 (-36%) Market adjusts to massive stockpile in Australia after deadcat bounce post-collapse of Reserve Price Scheme January 2003 to December (-32%) -562 (-46%) Economic slowdown, excess stocks in wool textile industry, SARS outbreak in China triggers price fall June 2011 to September (-36%) -501 (-35%) Global cotton prices drop as China builds up massive cotton stockpile, causing drop in all fibre prices. Excess stocks in wool textile industry * Based on the Australian Eastern Market Indicator, 2017/18 basis

21 Thank You!