Rumours of wool import restrictions but demand remains strong

There has been some recent speculation that wool may be included in the rumoured list of commodity import suspensions by China.

Fox & Lillie export has constant communication with its agents and customers in China, who have informed us that, so far, there is no concrete evidence to suggest there have been problems – or wool shipments being turned back – and, therefore, can only put it down to rumours at this stage.

It’s hard to predict what lies ahead. But, for now, there are a few factors to bear in mind in relation to this situation.

Firstly, China has a massive wool textile industry and to keep supplying that industry, it relies heavily on Australia for the quality and quantity it needs.

Australia supplies about 80 per cent of the world’s offering of fine Merino wool and, without this supply, China’s apparel wool industry would be short of fibre – albeit in today’s compromised COVID 19, demand-depleted, global market.

It is true that other markets, such as South Africa and South America, have reasonable quality Merino wool. But without Australia, volume would still be an issue.

Secondly, given China’s strong domestic growth and generally positive consumer activity levels, there is real demand for wool products at the local level.

It would appear – for the time being – it is unlikely that wool will appear on any list of Australian products to suffer import restrictions from China.

Let us hope so, because China continues to buy 85 per cent of our wool.

In fact, with regard to the rumours of other products being ”shipped back” to Australia, it seems that these rumours are slowly losing traction. Time will tell.

Just over a month ago, the Australian wool market was experiencing optimism driven by the unofficial Chinese Holiday called ‘Singles Day’ – or ‘Double 11’ – which had pushed prices off mid-September lows.

This more positive view of the market has now moved into its second month – albeit with huge volatility – and today we see huge price premiums over the levels of a month ago.

In fact, from early September to the first week of November, the Australian Wool Exchange Eastern Market Indicator (EMI) was up by 330 cents a kilogram.

Although in China demand for wool is strong, demand in our other main markets of India and Europe remains subdued as the second wave of COVID-19 sweeps the globe and pushes consumer sentiment backwards, unfortunately.

Overall, today’s wool prices in US Dollar terms are at – or below – the 10 per cent prices percentile of the past 10 years – with the exception being 18-micron and finer types, which sit at – or above – 25 per cent.

There is no doubt that these prices are at very attractive levels for the downstream industry.

Let us hope for a successful COVID-19 vaccine soon, which we believe will be a game-changer.

Rumours of wool import restrictions but demand remains strong‘ was published in the Stock & Land.

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