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Beyond the Bale : June 2018
The price of wool is rising and breaking away from other fibres, both man-made and other natural fibres. As crude oil prices could swing up or down, depending on perspective in the near future, it harbours uncertainty for synthetic fibres and cotton as they try to compete for market share and price. Wool, on the other hand, is somewhat free from the implications of changing alternative fibre prices and sits alone for quality and quantity as a natural fibre resource for eco-conscious consumers. Brent crude oil prices passed through USD$75/bbl last month, which analyst PCI Wood Mackenzie says could indicate a moving of prices back towards $100/bbl in the near future. Low oil prices have been inevitably enjoyed since 2015 as a new shale supply was found and many believed peak oil demand had been hit. However, the past year’s low prices caused some troubles for many producers as operating costs remained up. Synthetic fibre and cotton producers may need to increase prices as higher labour, transport, environmental and chemical costs put their margin at risk. Water costs in particular for cotton continue to mount and entitlements become increasingly harder to come by. These escalating costs will need to be passed on to the end consumer, ultimately reducing the major benefit of using these cheaper fibres: price. In 2017, according to market research company Statista, oil-based synthetic fibres accounted for around 64% of the world fibre consumption, cotton 24% and wool just 1-1.5%. Wool is not a suitable alternative to cotton and synthetic fibres for processors to switch between as prices increase or decrease, as low volumes make it uneconomical to change. Therefore, a price change in these ‘other’ fibres will not cause a relative shift in wool prices as the price of ‘other’ fibres is highly determined by production cost while wool is set by demand. Wool’s quality and performance as a fibre cannot be easily substituted for synthetic fibres or cotton by designers and manufacturers, as the product result will not be the same. The notion of not being a competitor may sound daunting to some, however it does allow wool to be free from the price constraints of these ‘other’ fibres, meaning the price of wool is determined by the consumer demand for it, and leaves the price limit ‘open’ for consumers to define. DEMAND DRIVES WOOL’S PRICE RISES The past decade has seen efforts to establish wool, and in particular Merino wool, as a premium fibre and subsequent premium prices have been received. This has seen prices climb steadily but surely over the past five years, and even more so over the past year lifting $3.27/Kg clean in 12 months. There have been false and misguided reports to claim the eight-year price drive for wool is a result of low supply. While supply is low comparatively to the halcyon and falsely held up price levels of the reserve price days of the late 1980s, the key thing to note is that Australian wool production has been on par since 2009, when the sustained price surge commenced. In the past season of 2016/17 AWTA tested 357,785 million kilograms of wool, just 1.7% less than the 363,879 million kilograms in of 2009/2010, while the EMI has lifted 62% or AU$5.4/Kg clean in the same time frame. Quite simply, supply cannot keep up the new demand for the fibre. This increase in demand for our fibre is heavily driven through the marketing efforts of not just the Australian woolgrowers through AWI’s marketing arm The Woolmark Company, but also by working ever more closely with processors, designers and retailers. In fabric innovation and development, The Woolmark Company has encouraged designers and labels to create products in new clothing markets and build demand that pulls our wool through the pipeline. The demand comes in both traditional markets of suits, jackets and coats, and new markets such as active wear and next to skin clothing. These technical developments have transformed the ability of wool to market itself away from the traditional market sectors, and stereotypical impediments to wool use, and reveal its true ability as a premium natural performance fibre that breathes and regulates temperature. Significant global brands are now using the story of wool or Merino in their marketing campaigns, which illustrates that wool has hit a new paradigm whereby premium prices over alternative fibres is the new normal. $8.00 $9.00 $10.00 $11.00 $12.00 $13.00 $15.00 $17.00 $19.00 $18.00 $16.00 $14.00 $20.00 $6.00 $7.00 $4.00 $5.00 $1.00 $2.00 $3.00 Jan 2006 July 2013 July 2001 EMI Nylon Polyester EMI average Acrylic Cotlook A index July 2010 July 2016 Jan 2018 Jan 2003 July 2004 July 2007 Jan 2012 Jan 2009 Jan 2015 AVERAGE MONTHLY PRICE OF WOOL AND OTHER FIBRES 68 MARKET INTELLIGENCE VERSUS OTHER FIBRES RISE IN PRICE OF WOOL