RECOVERING global demand and garment sales are forecast to drive the Australia’s wool price benchmark up to the 1600c/kg clean mark in the next year, according to agribusiness banking specialist Rabobank.
Rabobank’s latest forecast has the Australian Wool Exchange’s Eastern Market Indicator trading in the 1450-1600c/kg clean range through to June 2022.
Speaking on RaboResearch podcast Booming commodity prices rubbing off on wool, Rabobank analyst Dennis Voznesenski said demand indicators for wool are positive almost across the board.
“US retail apparel sales are 9.2 percent higher in April this year than 2019, and over 700 percent higher than the lows reached during the main pandemic period of April 2020.”
The bank said the commodity price boom – which has seen some agricultural commodities rise to seven-year highs in recent months – has “rubbed off” on the wool market with prices recovering from last year’s lows, albeit not to the same heady highs.
Mr Voznesenski said while some of the factors driving soft commodity prices higher – such as speculative fund activity and government intervention – did not apply to the wool market, the broader global economic recovery was driving demand for commodities and this was having a knock-on effect on wool.
“These factors are having an impact on the price of other fibres, including cotton, while synthetic fibres, which are derived from oil, and have also been part of the commodity boom,” he said.
He said cotton prices have increased by 15pc this year, with oil up by 47pc in the year to date.
While cotton is not a direct substitute for wool, “cotton prices have a positive relationship to wool in Rabobank’s wool price model, reflecting general demand for apparel, with moves in cotton commonly associated with similar direction moves in wool”, Mr Voznesenski said.
“Even though cotton prices have been rising, we have actually seen wool prices rise faster. The price spread between wool and cotton in US dollar terms has been increasing since late last year, indicating wool is becoming more expensive relative to cotton.
“That said, it was starting from a low base, with the smallest spreads in over a decade recorded in August last year, and it is yet to reach the five-year average,” he said.
Mr Voznesenski said while wool prices had not risen to seven-year highs like some other soft commodities, the Eastern Market Indicator (EMI) was 27pc higher than the beginning of the year and had recently “cracked through the 1400-cent mark for the first time in over a year”.
“Super-fine wool micron prices have left coarser wool behind, recovering the price drops from last year and now exceeding prices from early 2020,” he said, “with 17 micron wools rising by 88 per cent since last year’s September low.
“While medium wools have recovered, they have not seen the same rise in prices, with 20 micron wool increasing by 62 per cent over the same period.”
Improving apparel sales in key end markets, particularly for knitwear and the close-to-skin sectors, together with the associated improvement in processor sentiment was largely behind the upswing, Mr Voznesenski said.
The situation is similar in China, he said, with retail apparel sales up 2.5pc on pre-pandemic April 2019 figures. While in the UK, sales are now only marginally down on pre-pandemic levels, with a drop of 6.2 per cent on April 2019.
Mr Voznesenski said although suits were in “a bit of a different situation because people aren’t going back into the office just yet”, US woollen suit imports are at their highest level since the pandemic – albeit still 74 per cent below 2019 pre-pandemic levels.
“While suits aren’t back yet, wool is finding other avenues – such as the knitwear and active-wear categories – and the growth in prices is coming back,” he said.
Looking forward, Mr Voznesenski said, the high commodity price environment was likely to maintain a positive, albeit conservative, influence on wool prices.
“No matter which spectrum of the commodity range you look at – oilseeds, cotton or grain, or even if you look at oil – although Rabobank is forecasting they will not stay at these very strong levels, they will be supported over the coming year by solid fundamentals,” he said.
“We are seeing improvements and opening up in economies – which is leading to increased sales for garments.
“There are some positive signs there,” Mr Voznesenski said.
“But generally we expect it will be a slow upward tick for wool prices.”
Rabobank’s podcasts can be found on the RaboResearch channel or by clicking here.