RECENTLY I had a phone call from a young wool grower, who knew I was familiar with wool processing in China. Are the Chinese playing with the wool market he asked?
Not knowing our industry’s history, he was asking if we should have some type of price stabilisation scheme.
No market is completely free from manipulation. In 1992, George Soros shorted the UK pound, crippling the Bank of England and forcing the withdrawal of England from the European Monetary System (EMS). So there are always wealthy opportunists who can exploit a situation, but the collapse in the greasy wool market is, I think, simple and logical.
As Australia was coming to the end of the 2018/19 wool selling season some weakness started to appear. This was at the end of a 3 to 5 year bull run that Chris Wilcox, CEO of the National Council of Wool Selling Brokers of Australia describes as the greatest super cycle in the history of the world wool textile industry. Most have forgotten that the last wool boom in 1951 commenced after the Christmas break and by the end of April was running out of steam; lasting only four months.
In my view there are three factors underpinning the current market collapse:
- Exporters, in fact anyone who has a relationship with a Northern Hemisphere wool processor, have been reporting to their clients and friends since the mid-1990s that wool production in Australia is dropping. And so it has, from a flock 180 million sheep to the current 62 million, and future supply is at risk. This has been exacerbated in the last four years with Australia’s horrendous drought. So recently, a little additional stock has been put aside by those concerned about next year’s production. Sadly some of this stock was bought when the market was worth north of $20 a kilogram clean.
- Suddenly consumers around the world have put their hands in their pockets and stopped spending. This can be observed in any shopping precinct anywhere in the world. Consumers have lost confidence. We only need to ask the person standing beside us why this is so.
- Failure of Australia to address the demand for non-mulesed wool has meant that the premium for non-mulesed wool, particularly at a time of boom prices, has driven some brands whose customers demand non-mulesed, to desert wool, perhaps forever.
So with consumers on strike through fear as to what is ahead. Orders difficult to write along the entire textile chain from finished goods, fabric, yarn, or tops. And the world awash with over-priced stocks, what does one do, in these circumstances. The options are few. The most palatable is to buy cheap greasy wool at a price orders can be written and then hopefully blend through the expensive stock.
I fear that this correction is going to take some time and the question is once the drought breaks and wool prices have adjusted to a more commercial level, how much of our wool industry will be left?
Like all price corrections, this one is leaving few participants untouched. The damage may be in the same league as the collapse of the Reserve Price Scheme in 1989.