July 2, 2010
There are a lot of "ifs" in the latest Australian Bureau of Agricultural Research Economics' (ABARE) wool price forecast, giving rise to uncertainty on the ability of a price lift in wool.
While ABARE forecasted a price rise of 4 percent for wool growers from 2010 to 2011, the report underlines two major risks that could unravel the projected rise. The fluctuating Australian dollar and the European debt crisis are classified as "major risks" to the price forecast.
Chris Wilcox, executive director of the National Council of Wool Selling Brokers, stated the European textile industry was recovering slowly before the Greek debt crisis hit.
"What we've seen up until April was a steady solid rise in prices as demand recovered in both Australian and U.S. dollars," he said.
According to the report, the biggest factor affecting a rise in wool prices is how the European economy performs as a result of the Greek debt problems. Greece is a big user of wool, but the issue is what that means for the other countries like Spain, then Italy, Germany and France, three of the top seven consuming countries in the world.
"With that uncertainty, demand for raw wool pulled back a bit, in particular, the Chinese mills were concerned about what happened (in Europe)," continued Wilcox. "That sharp drop meant wool prices, in terms of U.S. dollar, were falling, so the Chinese were holding off to wait and see what happened."
The wool industry in China continues to strengthen according to ABARE. Chinese textile production grew 12 percent year-on-year for January to April 2010. Chinese domestic consumption of garments and footwear increased by more than 23 percent.
China, Italy and India continue to be the key sources of U.S. imports of wool products accounting for 26 percent, 14 percent and 12 percent, respectively, according to the report.
Also working in the industry's favor was the price of competing textiles. ABARE found that polyester prices were 16 percent higher than in the same period a year earlier.
"Cotton prices and prices for acrylic knitwear used in competition with wool and in wool blends have gone up," Wilcox said. "Wool is becoming much more competitive with those fibers."
Reprinted in part from farmonline.au