Monthly Market Reports

February 2012

1 March 2012

In our last edition, we provided an insight into global cashmere production and the close relationship of cashmere and Superfine wool prices – suggesting that the looming global shortage of cashmere will have positive implications for Superfine wool prices. In this edition, we will consider acrylic, which is most commonly blended with 21-24 micron wool in low-price point knitwear. We also look at the latest retail figures from the USA, which remains the largest market for clothing.

Trade News

The US is our largest historical market for apparel wool and for clothing in general – around $1 in every $4 of consumer investment on clothing and footwear occurs there, and the US is the destination for around 20% of Chinese clothing exports. For this reason, we pay close attention to the US retail situation, which has been stagnant since the GFC.

For these reasons, we are pleased to report encouraging news showing growth in consumer spending and sentiment. The slight labour market improvement and income gain has worked to lift consumer confidence.

Recent figures from the US Commerce Department show January sales were 5.3% higher year-on-year, and sales at department stores were 1.0% higher than December and 1.5% up on last January.

According to the Office for National Statistics (UK), both the value and volume of retail sales rose 0.9% between December and January. This compares with January last year, when the volume of retail sales was 2% higher while the year on year value rose 4.4%.

Textile and footwear stores reported sales volume increases of 0.5% compared with January 2011 while sale values jumped 3.6%.

Wool: Acrylic

We often see the price of wool compared to competitor fibres such as cotton, to draw some inference of the competitiveness of wool. While often these analyses look backwards at what has already happened, AWI has been looking at competitor fibre production and pricing in order to generate some insights into future wool price impacts. This month, we look at acrylic.

Acrylic is a man-made fibre, most often encountered in our industry as a blend with 22+ micron wool in the production of mid-layer knitwear. Technically, acrylic is a derivation of an acrylonitrile feed stock, which is normally produced from oil or natural gas fossil fuels. For this reason, one would expect that the price of acrylic would relate to the price of oil.

There is indeed a strong statistical correlation (90%) between oil price and acrylic prices, and the impact is lagged 3 months (it takes around 3 months for an oil price change to cause acrylic prices to rise). The graph below shows the trends since July 2001 in the price of West Texas Intermediate crude oil and the price of acrylic, where we have expressed the oil price in US$/kg instead of the more usual US$/barrel. Note the similarities in the overall price trends, and also that currently the price of acrylic is around 4 times the price of the oil feedstock.

Looking ahead, the West Texas Index (WTI) is forecast to increase by around 8% in 2012 compared to 2011, according to UK-based commodity forecaster, the Economic Intelligence Unit. Supporting this view is that from PCI Fibres, who report that demand for acrylic is also growing, especially in Asia – in combination, these suggest that acrylic fibre prices will continue to trend upwards over the coming year. In combination with high wool prices in the 21-24 micron band, this will add to the price pressures being felt by knitters and their suppliers.