September Wool Economy Focus

Summary of contents

With the autumn / winter approaching in the northern hemisphere, though indicators indicate that

Demand

This issue focuses on the current economic and consumption situation of the main wool clothing market in the beginning of autumn / winter in the northern hemisphere.

Note: the main woollen clothing market is China, the United States, Japan, Italy, Germany, the United Kingdom, South Korea and France.

The northern hemisphere autumn / winter (October -1) accounted for 60% of the global annual consumption of wool garments.

The continued worries of the US and the eurozone on government debt have led to sharp fluctuations in world financial markets, and the economic growth prospects of many major consumer countries have weakened over the past few months.

In its latest world economic outlook report released in mid September, the International Monetary Fund (IMF) highlighted two major risks to the world's economic growth and commodity prices in the US and eurozone debt problems.

Based on these concerns and the current turbulent financial markets, IMF has reduced its forecast for economic growth in 2011 and 2012.

World oil and non food prices have also been reduced.

The figure below shows the IMF's forecast of economic growth in the world and eight major wool consumer countries in 2011 compared with the June forecast.

The unemployment rate in the United States and Europe is very high. Despite the corresponding measures taken by the government, the unemployment rate has not dropped.

For example, the unemployment rate in the United States is 9.1%, almost two times that of 2007.

Fluctuations in the financial markets and high unemployment have reduced consumer confidence in the US and Europe.

In August, although the consumer confidence index in two regions is still far above the lowest level in 2009, it has dropped to its lowest level since the outbreak of the global financial crisis in 2009.

Despite worries about the macro economy, there is hardly any indication of clothing.

These growth figures show that as long as the consumer spending is maintained for the next three months, sales of wool garments should achieve good results.

This in turn will help maintain the demand for wool raw materials, and the report points out that the raw material inventory in the wool textile industry is relatively small.

Demand for next month: what is the situation of China's wool textile industry?

supply

The current supply will focus on the latest forecast of world wool production in 2011/12 and its impact on wool raw material supply.

The latest prediction of wool production in Australia is that 2011/12 will steadily increase from 345 thousand tons (gross wool weight) in 2010/11 to 355 thousand tons (gross wool weight).

The increase in production is mainly due to the increase in the number of sheep.

The Australian meat and Animal Husbandry Association estimated that at the beginning of this year, sheep were 70 million 800 thousand, only 68 million 100 thousand a year ago (this is the lowest level since 1904/05).

Contrary to the increase in Australian output forecast, production in New Zealand and Argentina will decline slightly in the year 2011/12.

New Zealand cattle and sheep Committee's latest forecast shows that due to a 2% reduction in sheep production, New Zealand's shearing output will be reduced to 148 thousand tons of crude oil, a decrease of 1.5%.

However, industry analysts believe that the number of sheep will be reduced more and wool production may be lower.

Argentina wool alliance predicts that Argentina's shearing output in 2011/12 will be reduced to 47 thousand and 300 tons of raw wool, a decrease of 3.6%, mainly due to strong competition from arable land (especially soybean production) and the decrease in sheep numbers.

One of the reasons for the decrease in the number of sheep is the outbreak of the volcano in June in Chile.

In other major wool producing countries, wool production is expected to maintain its original level or even increase, though not much in most cases.

In short, world wool production is expected to increase by 1% in 2011/12.

There are indications that the wool production in 2010/2011 may be the lowest level of world wool production, but it will increase slowly in the next few years.

Although the wool production in 2011/12 is expected to increase slightly, the supply of world wool will probably decrease because the wool stock in major wool producing countries is very low.

Driven by high prices, available inventories in recent months have been sold out.

As shown in Figure 1, the ratio of stock and utilization of wool raw materials is very low.

It is said that if the inventory and utilization ratio is around 20-25%, the market will maintain a balance.

Whether Australia or the world, the stock and utilization ratio of wool is estimated to be far below this.

Low stock and low total supply will provide a certain support for the 2011/12 world wool price.

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Price trend and expectation

The latest OECD key indicators indicate that world economic activity will slow down in the next month.

The price of wool, especially the price of fine wool, has been synchronized with the trend of OECD's main indicators in the past twenty years (as shown in Figure two).

The decline in key indicators indicates that the dollar price of wool may go down in the next few months.

However, the low supply level of woolen raw materials, especially clothing wool, should ease the price decline.

The uncertainty of the world financial market and its possible impact on the upcoming fall / winter consumption expenditure of the main wool consumer countries will continue to exist and need to be tracked.

Supply and price next month: what is the trend of wool supply in China market? Is the price difference between fine and medium wool widened?