More ‘runway’ in wool prices yet – AWI CEO McCullough

Terry Sim, June 1, 2018

Making wool price immaterial: AWI CEO Stuart McCullough presents the ‘Best of Boston’ t-shirt to 2018 Boston Marathon mens winner Yuku Kawauchi.

MERINO wool’s high-end marketing focus and supply dynamics suggests there is room for auction prices to continue upward, Australian Wool Innovation chief executive officer Stuart McCullough said yesterday.

Mr McCullough can lay claim to being one of the few people who has believed at least for the past five years that Australian wool was a $20 a kilogram fibre, but he now wants to see prices settle and bed down in the supply chain.

Yet despite the benchmark AWEX Eastern Market Indicator closing this week at an historic 2027 cents a kilogram clean, he is adamant there is still “runway” in wool values.

“I’m delighted to see it get that $20 milestone out of the way, but you would like to see it settle and just take a bit of a breath.”

Apart from the supply concerns, factors helping wool demand included the affluence of China, the macro trends of Gen Y’s wanting clean biodegradable product, and the sport and athleisure wear market growth, he said.

“None of this is new, it is just manifesting itself all at once, with a bit of pressure on supply.”

However, Mr McCullough said “$30 is the new $20”, and with general global consumer confidence and the “uber” or macro trends at work, he believed there is “runway” in wool prices.

“I know that the processors and the buyers of our product, certainly early stage buyers, won’t like to hear that, but I think there is some runway in the run of wool prices.

“Of course we want wool prices as high as we can for wool growers, but we also work with the supply chain and to placate them and make sure that they are digesting what’s happening is very important to us as well,” he said.

“We think that there is certainly upside here with these macro trends and the affluence in China and with what we’ve done, we’ve no doubt about that, but every now and then the market should take a bit of a breath.”

Mr McCullough said the market was operating on wool sales made at the recent International Wool Textile Organisation conference in China and industry “panic” about the impact of the drought across Australia.

“But those orders will get filled up and hopefully we can get into a bandwidth that bounces and take a bit of a breath.”

Top-end marketing makes wool ‘immaterial’

Mr McCullough said AWI had always pitched its marketing strategies at the “pinnacle of the fashion triangle.”

“We’ve done it because we need to deal with retailers that have the elasticity in their pricing.

“In other words they have to have enough margin in their pricing to absorb wool at $10, $20, $30 a kilogram, whatever,” he said.

“We need the material that’s in wool to be immaterial.

“That works very well with a suit, if you are selling a suit for a grand and if you’ve got a kilogram of wool in it — $20, it is still largely immaterial.

“If you are talking about a sweater then you need to be selling the sweater at $150-$200, with a sweater having 300gms of wool in it,” he said.

“That means if you are putting wool into a base layer piece of knitwear, it’s maybe 200 gms or not even that, it might 180 gms.

“If you then move it into a garment that is selling for $200-$250 as an Adidas product, again it becomes immaterial, the same as with all the lululemon and athleisure stuff,” Mr McCullough said.

“When you get a bit of wool in that it is still immaterial – the raw material is immaterial.

“It’s not about what sells, it’s what it sells at, that’s been very important to us.”

Mr McCullough said AWI did not want to market wool into the mass market space, but has always had a priority of pitching in at the top-end in apparel.

“We want to play at the top-end, where the raw material is immaterial.”

He said AWI did not want to price and demand volatility that came from placing wool with price-sensitive mass market outlets, but wanted to see continuity of sales with retailers that have plenty of margin elasticity.

Wool getting sold early complicates future supply

Dubbo broker Don Macdonald said many wool growers often hang onto fresh-shorn wool (early May) at this time of the year and sell it in the new financial year, in July.

“But they are not doing it now, they are selling the wool and either taking the cash or holding the proceeds; they are not going to miss out on it.

“I guess the fear is, that if the market can go up 300 cents in the space of six weeks, it can fall 300 cents in the space of six weeks,” he said.

“This has changed probably over the last couple of years – the July sales used to be our biggest sales; the late autumn and winter is our biggest time of the year in western New South Wales and that wool is flowing straight through and hitting the market without any interruption because there has been no wet weather.

“And that’s what is driving the market; the fear of what is around the corner supply-wise – that’s a real concern.”

He said most of central and western NSW and into Queensland was in “dire straits” because of the dry conditions.

“Some people are comparing it to 2002 and a lot of people are going back to 1982.”

With the expectation that hay and other drought fodder supplies for sheep would run out or get too expensive, “the real fear is what is around the corner for next year.”

Elders National Wool Selling Centre manager Simon Hogan said many of the company’s clients also believed it was “too risky not to sell” at current prices.

There was less juggling of wool sales by growers to spread income into the next financial year in case the market corrected quickly, he said. Traditionally, bale offerings in the first two sales in the financial year can grow quickly, before the three-week recess.

“Those sales (offerings) have just got to be less this year, because we just haven’t got the wool on hold.”

Mr Hogan said there was a “supply shock” is at the broad end of the Merino clip – 21-23 microns, with offerings scarce, compared to this time 12 months ago.

“We’ve seen that gap between fine wools and medium wools close since January purely because of the follow-on effect of the really tight season we’ve had.”

He expected bale offerings of 20,000-30,000 to continue into June.

“We might see a 40,000-45,000 bale offering in the first sale of the new season and then we are heading into a recess.

“There has been good demand in the market up to this and a lot of those with a hand-to-mouth strategy have all of a sudden been caught and nobody is holding any stocks – brokers, growers, topmakers or spinners – the pipeline is really light on for stock.”

Mr Hogan said to will be interesting whether wool entering the pipeline now at current prices is able to be sold in garments in six months’ time.

“In $US terms, 20 microns and finer, I think in 2011, they were dearer, so from that perspective the market’s not extreme for 20s and finer.

“But for 20 microns and broader, we are at record levels in $US, as far as I am aware.”


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  1. Edward Wymer, June 1, 2018

    Mr McCullough has it spot on for once; the price of the wool in any garment is very minor to the final price of the garment and always has been.

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