Supply exceeds demand, wool prices are high

According to AWI's latest market intelligence report, all fiber prices have fallen from their peaks in the 2010/11 financial year. AWI also pointed out that the price of wool (fine, coarse and carpet wool) performed relatively well - mainly because of the current global supply shortage, especially in Australia, where 24 micron fine wool accounted for half of world production, all Wool accounts for a quarter of the world's total.

The report continues - In this context, some trade news deserve attention. In response to changes in the market, synthetic fiber and cotton production can be increased or decreased more quickly than wool.

â—† The price of synthetic fiber in the Chinese market has rapidly declined (about 60% of global production), reflecting excessive domestic production and a weak export market. Prices are expected to stabilize after Christmas, mainly due to the low production capacity of processors.

◆ During the harvest season in the northern hemisphere, the cotton price has returned to its initial level after undergoing a rapid decline. However, this should not be regarded as an indicator of consumer demand. According to reports, China’s “National Cotton Purchase and Storage Plan” has largely supported cotton prices. If the cotton price in the domestic market is lower than the temporary cotton price announced by the country, it is currently 3 US dollars/kg, (and at the same time meeting other conditions), the state will implement the acquisition. However, given that production will exceed demand by about 2 million tons (7.5%) this year, concerns about price sustainability still exist. A further drop in prices may lead to a shift in production capacity to food and oilseeds.

â—† Supply tensions appear to be the main driver of high wool prices, which is unlikely to change quickly due to the strong demand for mutton.

AWI released a report two months ago that outlined “who wants to increase the demand for rare and precious natural fibers (such as wool) as the target customer group”. The report analyzes whether the wool industry should pay attention to high-end consumer groups or whether it should take the route of small profits and quick turnover. The team of renowned global demographics company Clint Laurent recently completed a global demographic trend study that applies to apparel and footwear consumption. The study was funded by AWI.

The main points of this study:

◆ 5% of the population (about 280 million people) spend at least 1,200 U.S. dollars a year to buy clothing and footwear—the average person spends about 2,300 U.S. dollars per person per year. In the next 10 years, their spending will increase by 39% from 643 billion to 849 billion.

â—† 3%, or 168 million population expenditures, account for 12% of all clothing and footwear expenditures, and is expected to increase by 30% over the next 10 years.

◆ In short, consumers’ investment in clothing and footwear accounts for 50%, and these consumers only account for 8% of the population.

â—† In terms of territoriality, there is no doubt that most of these consumers live in developed countries - North America (the United States, Canada), Western Europe (Italy, France, Germany, the United States, etc.) and Japan.

The AWI report believes that these conclusions are very important for investment positioning. In particular, some people believe that wool producers can only benefit from 2-6% of the retail price per kilogram of wool clothing, and in the long run, if the manufacturer demands to improve Income, the retail price of wool may increase.