The strength of the Australian wool market this season has taken place against a backdrop of wider inflationary pressures, but the scale of demand against a modest supply has been influential.
Burgeoning middle classes in countries such as China and India are undoubtedly consuming more high-end garments manufactured from wool. However, when interviewed, Bill Waterhouse, chairman of United Kingdom (UK) textile manufacturer, Bulmer and Lumb Group, emphasized the positive impact on sales of two cold winters in many parts of the world, which has brought a renewed focus among consumers on the thermal properties of wool fabric.
A recent piece in the UK business press highlighted that a number of retailers felt that the rise in wool prices would necessitate increases in their ticket prices in the months ahead. Concern was also widely expressed whether price hikes could be passed on to customers in the current economic climate.
The absorption of higher raw material costs is obviously an issue throughout the supply chain. Paul Holt, sales director for UK-based Spectrum Yarns Ltd., indicated that the price increases were slightly easier to pass on to yarn buyers in the very top end of the quality range, where end users are accustomed to paying thousands of pounds for a tailored suit, but in the bulk of business, the situation was getting difficult. Holt added, "When prices are as volatile as they are day to day, that's what is difficult to handle, rather than the strength of prices themselves."
Waterhouse also intimated that the pace of absorption of higher costs varied between different areas of the fabric business, with buyers in Japan and Korea involved in the high-end of the quality spectrum seeming to cope better than others. A warm winter in the Middle East, in contrast, has seen many customers in that region go into the summer fashion season with high stocks, which has allowed many to delay orders at the increased prices now quoted. Nonetheless, "they recognize that they will have to pay the prices next season," Waterhouse confirmed.
Referring to the potential for fabric buyers to seek cheaper, alternative mixes to pure wool, he added, "The first signs of substitution are emerging in autumn fashion sales, but it could be autumn 2012 before we see big substitution." Consumer focus on wool for warmth may have mitigated some of the price pressure among clothing manufacturers to switch into blended products, but the incentive is growing.
Notwithstanding sectoral variations, it is clear that the challenges created by record Australian wool prices are already being felt throughout the supply chain. However, their full effect may be slow to feed downstream, suggesting that wool use could hold up relatively well in the short term, with implications for the price outlook.
Reprinted from The Wool Record Weekly, AU