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
Topics 1. Recent price trends 2. Global production and supply 3. Demand conditions 4. Summary and prospects
Feast for Fine Merino Wool; Famine for Broader Wool USc/kg 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 Australia and South Africa USc/kg 700 600 500 400 300 200 New Zealand and the UK 400 200 0 Aus 18um Sth Africa 21um Aus 28um 100 0 UK - Broad NZ Broad Xbred Source: AWEX, BWMB, NZ Wool Services Prices to 25 th January 2018 NZ Broad crossbred wool is 33-38 micron. The UK wool price is the British Wool Marketing Board Indicator.
Broad-based Price Rise for Commodities (US$ basis) Index: Jan 2016=100 200 190 180 170 160 150 140 130 120 110 100 90 80 All Items 70 Metals 60 50 Food Oil Index: Jan 2016=100 190 180 Cotton 170 Polyester 160 NZ Broad wool 150 Aust 18um wool 140 130 120 110 100 90 80 70 60 50 Source: The Economist metals and commodity prices US$ index; AWEX EMI in US$. Cotton Outlook for cotton and Mackenzie Wood PCI Fibres for polyester staple and acrylic Data to 25 th January 2018
Fine Merino Wool Price Ratio at Highs; Broad Wool Price Ratio at Lows US$ terms Ratio Synthetics Ratio Cotton 10 10 18 micron 18 micron 9 9 21 micron 21 micron 8 Broad Xbred 8 Broad Xbred 7 6 5 4 3 2 1 0 7 6 5 4 3 2 1 0 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
US cents/kg 1,600 1,400 1,200 1,000 800 600 400 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$ 481 1508 200 321 311 Global Asian Financial Financial Crisis Crisis 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 921 461 Double-faced woollen fabric mania 918 1074 Euro debt crisis Commodity prices rise superfine wool prices up 1400 Source: AWEX 2017/18 basis Data to 25 th January 2018
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 1988 1203 1582 +743 (+162%) +925 (+140%) 111 Strong co-ordinated economic growth, Soviet Union buying, China begins, positive fashion styles April 1993 to March 1995 707 949 +379 (+116%) +496 (+107%) 97 World economic recovery, post Reserve Price Scheme collapse bounce, China emerges November 2001 to January 2003 709 1211 +350 (+97%) +501 (+71%) 59 Last bale of the Australian wool stockpile sold kicks off price rise May 2010 to June 2011 1512 1434 +789 (+109%) +564 (+65%) 57 Global economic recovery after GFC and cotton prices to 100+ year highs April 2016 to January 2018 1439 1818 +540 (+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
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 800 700 600 500 Apparel wool Interior textiles wool Stocks:Use ratio ~11% 400 Source: IWTO, Country statistics, Poimena Analysis Updated January 2018
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
1901 1906 1911 1916 1921 1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 Australian Wool Production Remains Near Century Lows mkg greasy 1200 1000 800 600 400 200 Forecast for 2017/18 345 mkg 0 Source: Australian Bureau of Statistics, Australian Wool Production Forecasting Committee Based on a season. 2018 = 2017/18
Consumer Confidence Lifts in the Major Wool Consuming Countries Index Jan 2008 = 100 Index Jan 2008 = 100 150 140 130 120 110 100 90 80 70 60 50 40 30 20 US EU 140 130 120 110 100 90 80 70 60 China Japan South Korea Source: The US Conference Board, the European Commission and www.tradingeconomics.com Data to December 2017
Improving Clothing Retail Sales % change y-o-y 2011 2012 2013 2014 2015 2016 Year to date* 2016 2017 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
Improving Furnishings and Interior Textiles Retail Sales % change y-o-y 2011 2012 2013 2014 2015 2016 Year to date* 2016 2017 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
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
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% 2014 2015 2016 2017 60% 50% 40% 30% 20% 10% 2014 2015 2016 2017-20% 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)
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% 2017 2016 2015 2014 2013 +4% 0 25 50 75 100 125 150 175 200 225 250 275 300 325 350 375 400 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
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
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
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?
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 1991-666 (-55%) -1045 (-66%) 418 537 111 Collapse of the Reserve Price Scheme, Soviet Union falls apart, Tiananmen Square March 1995 to May 1996-232 (-33%) -343 (-36%) 475 606 97 Market adjusts to massive stockpile in Australia after deadcat bounce post-collapse of Reserve Price Scheme January 2003 to December 2005-229 (-32%) -562 (-46%) 480 649 59 Economic slowdown, excess stocks in wool textile industry, SARS outbreak in China triggers price fall June 2011 to September 2012-549 (-36%) -501 (-35%) 963 933 57 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
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