In this final edition of the Market Intelligence report for 2011, we reflect on the year that was, and provide some insights into the coming year for the Australian wool industry.
The value and volume of wool sold.
Figure 1 shows movement in price and bales sold at auction nationally over the 23 month period from January 2010 to Nov 2011. For the 2010 calendar year, an average of 146,551 bales were sold, at an average price of 918 Australian cents per kg. For 2011 (year to date), we have averaged 149,061 bales of wool sold per month (+1.7%), at 1,289 cents per kg (+40.5%).
In economic terms, we have seen a big lift in price despite a small lift in supply, and against a backdrop of much uncertainty in foreign exchange rates and international market health. Our view is that this has been a very encouraging year, and augers well for the future.
Global wool supply
Our view, often covered in earlier editions of this newsletter, has been that the wool price increase is primarily underpinned by the steadily increasing domestic demand from China, and a shortage of global wool supply. Drawing on the latest EIU Outlook for Wool, Table 2.1 illustrates the supply side situation – note the drop in the wool supply from Australia, China and New Zealand (2009/10 – 2010/11), and the outlook for slow recovery driven by Australian supply - Australia is the only country forecasted to lift its wool production in the coming years
This EIU forecast of recovery in Australian production is consistent with the latest Census results from the Australian Bureau of Statistics (ABS), which shows an increase in sheep and lamb numbers from 70.1 million to 74.3 million (+6%).
Global wool demand
As the European market experiences uncertainty, expectations are that wool consumption in the EU will continue to fall. In the long run, fall in demand will be exacerbated by the expected reduction in the region’s economic growth rate and demographic change. Nevertheless, the reduction in demand from EU will be compensated by the growth in China.
China’s economic growth is forecasted to slow down, however, it will continue to grow at a rate just below the double digit level. Again adapted from the latest EIU outlook, Table 2.2 shows how China’s consumption of wool for processing will continue to grow, and overall, consumption of wool will stabilise.
As we have mentioned previously, the increase in Chinese real wage has led to the strong growth in Chinese domestic demand for luxury products, as both wool apparel and carpets are considered luxury products. Fortunately for us, the Chinese luxury market, like others, appears resilient against global economic slowdowns – and so consequently, the future of Australian wool market looks bright given the slow recovery of the US and UK economic climate, significant reduction in wool supply and the growth in the Chinese luxury market.