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Beyond the Bale : March 2017
When one looks at the current greasy wool price and reads the never ending stories of consumer behaviour shifting towards natural and sustainable fibres, it is hard not to be just a little optimistic about wool’s future. However this is not the first time we have been flushed with good news and positive sentiment only to see wool prices spike and then fall just as rapidly. But something feels different this time and wool seems to be transitioning to a new world of unchartered circumstances. There are many circumstances that define this ‘new wool world’, but it essentially comes down to a paradigm shift in global wool supply versus demand and a groundswell change in consumer behaviour. Whilst we can all rejoice at the recent wool prices being enjoyed by woolgrowers it is important to understand how the market got to these levels and more importantly whether or not they can be maintained. The fact that 21 micron wool prices have recently cracked through 1,400 ac/kg is not a result of sudden acceleration in demand or dip in supply. It is the result of far more long term evolution. Prices have been hovering above 1,000 cent per kilo for 7 years as users of wool globally have had to come to terms with the fact that wool supply is no longer ‘on tap’. It has been almost 15 years since the last bale of stockpile wool was sold and since then sheep numbers have almost halved in Australia. This had been prompting global processors and more recently retailers and consumers to understand that our fibre is a precious natural product of finite supply. This new balance in supply versus demand has seen wool prices become far more AWI’s General Manager for the Eastern Hemisphere, John Roberts, says the current buoyant wool prices are a reflection of the underlying dynamics of supply, demand and consumer priorities that are looking favourable for wool. TRANSITIONING TO A NEW WOOL WORLD resilient in recent years. Previously the price appeared to be far more heavily affected by global events, whereas now it looks to be less impacted. A good example of this is the strength we saw in prices in 2011 and 2012 despite the Australian dollar averaging more than the US dollar. In addition to this, wool has broken the 3 to 1 price ratio nexus between cotton, polyester and acrylic. Previously whenever the price of wool exceeded the 3 to 1 ratio against those other fibres it would be pulled back down to earth reasonably promptly. However since 2010 wool has been averaging more than 5 to 1 and has not dropped below 4 to 1 suggesting that it is scarcity or the way it is regarded or valued in textile circles has changed. Finally people are realising our fibre is not an abundant and bottomless supply source... it is a rare and highly valued product. So can this seemingly buoyant time for wool be maintained? Given the pressure on wool production from competing land uses like cattle and cropping it is reasonable to expect that wool production is not likely to undergo any major increases in the near future which should contribute to longer term price stability. Wool’s exclusivity through scarcity is now being compounded by a global shift in consumer values. Almost every partner we engage with through our international network speaks of a significant change in their customers’ values and priorities. What is so encouraging is that this shift in values is moving directly in wool’s favour. All the natural qualities and functional benefits of wool are becoming a priority for a growing wave of consumers globally. Themes of sustainability, corporate and social responsibility and provenance dominate all our dealings with partners through all facets of the industry from supply chain and product innovation to fashion and retail. Another interesting trend in consumer behavior is a move to what is referred to as ‘minimalisation’. It concludes that in many established wool wearing economies there is a movement away from ‘fast fashion’ and the lure of big brands. The idea of only wearing a garment just seven times is less appealing, and regarded as wasteful and non sustainable. The philosophy of ‘buy once but buy better’ is central to this idea. Again, wool aligns well with this. The fact that wool is natural, renewable and biodegradable and highly resilient will be of great interest going forward. So it seems that the underlying dynamics of supply, demand and consumer priorities are aligned well for wool. Whilst this is good news for many it is likely to present some challenges to early and mid stage processors who will be looking to pass these strong greasy wool price rises up the supply chain to a retail and consumer level. Whilst there is clearly an appetite for our beautiful fibre at a consumer level it takes time to feed price increases up the chain. In the Eastern Hemisphere a good deal of our time and resources are spent working with topmakers and spinners who have raised concerns about the rapid increases in prices and their ability to extract the same increases from their upstream customers. High prices are not the problem, more so it is an issue of volatility. Most mills can accept that wool is on an ascendancy but believe that a gradual and steady rise in raw wool prices will benefit all industry players from woolgrowers through to brands and retailers. MARKET INTELLIGENCE 53 John Roberts, AWI General Manager – Eastern Hemisphere
In the Shops - March 2017