Global Wool Prices Warming Up

Rising prices are likely to lead to higher consumer prices for woolen products.

Wool prices in Australia may extend gains from the highest level in at least 16 years before new supplies later in the year bring down costs, according to Indian company, Raymond.

Benchmark prices in Australia have surged 39 percent this year, heading for the best annual gain in nine years. Prices touched A$14.31 a kilogram this week, the highest since at least July 1995, according to Bloomberg data, as supplies shrank and European buyers restocked.

In South Africa, wool is at the highest level in more than a decade.

"Wool prices have been on an exceptional rise," Aniruddha Deshmukh, president of textiles with Raymond, India's biggest maker of woolen fabrics, said in emailed responses to Bloomberg News. "While it is believed that the price of wool would continue to move up, we expect that in another two or three months, when the new clip hits the market, there may be a price drop, only to firm up later in the year."

Global wool output has fallen to the lowest level in about 85 years, with Australian production at similar lows, according to the International Wool Textile Organization (IWTO).

Wool is catching up with rallies in other farm commodities from cotton to wheat and corn, as rising raw material costs stoke inflation worldwide.

"Demand and supply are looking strong enough at least to keep these prices going," Anthony Boatman, risk manager for wool at Landmark, a unit of Calgary-based Agrium, said. "Supply is fairly constrained and that's particularly showing at the moment."

Wool in Australia climbed to a record A$15.84 in April 1988, Landmark said in February. Cotton prices surged to a record $2.197 a pound in New York on March 7. Wheat is up 47 percent in the past year, while corn has increased 72 percent. Wool's 39-percent gain this year exceeds that of corn, silver, coffee and gold.

"Initially, this rise was attributed to inflation, later it was related to abnormal increase in prices of other fibers led by cotton," Deshmukh said. "Currently, at the end of the season, the short supply of wool is further increasing its price."

Global wool output will be 1,098.8 million kilograms clean weight in 2011-2012, little changed from a year earlier, Wilcox said. That's the lowest in about 85 years. In Australia, production is forecast at 340 million kilograms greasy weight in 2010-2011, the lowest since 1924-25, he said.

Higher wool prices may increase the cost of clothing in India next winter, with wool purchased now to make garments for the next cold season, DK Nair, secretary-general of the Confederation of Indian Textiles Industry, said recently.

More expensive wool would increase costs for textile and apparel makers and may add to inflationary pressures as consumers face pricier clothes. Central banks from China to India and the European Union have been raising rates to restrain the pace of price gains.

"Economies are slowly getting back on track, and demand is increasing for luxury items, which wool is," said Landmark's Boatman. "Most retail sectors are fairly cutthroat in the way that they price, but if the demand's there, then people will pay the price."

Activity levels are expected to move back to normal levels over the next six months. The good news is that stock levels were reported to still be below normal levels in most sectors, notably in the early stage processing and spinning sectors, and are expected to move only slowly back towards normal levels in the next six months. This suggests excess stocks will not be an immediate concern. At the Congress, although the mood was positive, there was moderate unease among some of the Chinese mills and traders about the current high wool prices in U.S. dollar terms. Mills from Europe were more comfortable. Overall, there is good reason to be positive about the next six months.

Reprinted from The New Age, South Africa and Landmark