Trade War: Australian Wool Prices Hit The Biggest One-Day Drop In 15 Years

Australian wool sales report shows that compared to last year's high price of 21.16 Australian dollars / kg, the benchmark price of Australian Merino wool auction fell by more than 20% in August 14th.

Under the influence of Australia's long drought, wool production has reached a historical low. Under the tight supply situation, the low price is quite unexpected. Some buyers said the big price dive was due to the intensification of Sino US trade war and the reduction of orders in Chinese factories.

By the end of last week's trading, the benchmark price of wool in the eastern Australian market has dropped to 16.76 Australian dollars / kg. The price is not known this week, but the sales report of the three main sales centers - Sydney, Melbourne and Freeman Pieter in August 14th - shows that the auction results are very frustrating.

The largest single day decline in wool benchmark prices since 2003 has been seen in the southern Melbourne market.

More than half of the Merino wool market in the West did not find buyers. Australian Wool Exchange reported that the auction ended, more than 55% of the wool racket was sold, and another 20% cancelled the auction ahead of schedule.

The wool traders who participated in the auction in Sydney apparently did not expect such a result that more than 1/3 of the woollen bags were sold for less than the benchmark price.

Australian Merino Exports trader Scott Sealy said: "last week it went down badly, and this week it will continue to fall. There is no confidence and no business at all." The biggest decline in high-end Merino wool was 7% in August 14th auctions. The same grade of wool fell two digits a week ago.

According to the price trend of wool last year, this year's price is expected to grow to 25 Australian dollars / kg. This week, a total of 43697 bales of wool are available for sale in Sydney, Melbourne and Freeman. If the price is not rising, most of the wool bags will be sold. Next month, 146880 bags of wool are on sale.

The fluctuation of wool price trend shows that the influence of Sino US trade war has spread to third parties such as Australia. Australia now exports 90% of the world's high-quality wool.

At first, Australia's wool was mainly exported to Italy's clothing market. Now China is Australia's largest wool consumer, accounting for more than 2/3 of its exports. Government data show that Australia's gross exports of wool last year amounted to 3 billion 200 million Australian dollars. And every year, 60% of Australian wool exported to China will be consumed in the Chinese domestic market, and 15% will finally enter the US market.

Peter Rookyard, a customer buyer of wool in China, said that the main reason for the fall in wool prices was global events. "Now we are facing a completely different situation. Our market is affected by the external forces of Sino US trade war, and we can not solve this problem. Their stock has not been shipped out of China, and the domestic market in China may still be reasonable, but the export has just stopped. They have stock of raw wool, wool tops and wool products, and there is no road to sell.

National Council of Wool Selling Brokers of Australia executive director Chris Wilcox also said that factors outside the industry, breaking the past 30 years, the price of wool "super rise cycle". "Our super fortune has been maintained for two years," he pointed out. In the past two or three months, Chinese factories have begun to reduce purchases due to increased clothing, fabrics, spinning and wool stock.

Chris Wilcox pointed out that up to now, Trump's tariff policy on China has not affected wool clothing, but once the 10% tariff policy is implemented, the garment industry will not escape. In August 1st, the Trump administration announced that from September 1st, tariffs of 10% on Chinese exports to the United States, including clothing and footwear, will directly impact on the price of wool. In August 13th, the US government announced that the tax increase would be postponed to December 15th.

Since last year's record high, demand for wool has gradually slowed down and stabilized in the middle of the year. Subsequently, Sino US trade war broke out again. "We didn't expect it to be so bad," said Ian Sharp, chief auctioneer of Macdonald & Co Woolbrokers. China is our special and important customer. Without the Chinese market, the whole market will be in trouble.

Scott Carmody, an innovative Australian wool consultant, points out that trade war is the biggest factor affecting wool prices, as well as Britain's instability from Europe and the outbreak of South Africa's HFMD. Author: Jiang Jingjin