Josh Lamb

Managing Director,

Endeavour Wool Exports.

What a year for the industry around the world, has there ever been a more defining 12 months than the last? Unfortunately most of what has occurred has had a negative impact in all countries in one way or another.

The market started the season in August last year at the height of the US/China trade wars when the Eastern market indicator (EMI) was sitting at 1723auc/kg already well off the February 2019 peak of over 2000auc/kg. By early September 2019 the indicator had shed 400auc due to a lack of confidence in large part due to the uncertainty of relations around trade with the USA.

The market did recover from this early setback and was starting to look like it would find its feet in January 2020 when covid-19 appeared and started the industry descent down what we know now was a very slippery slope. The initial impact on the wool market was not significant for the first six weeks despite Chinas hard lockdown however as the rest of the world followed China’s lead locking down it became apparent the market was going to suffer.

By March the Australian wool market started to drop with what appeared at certain times to be a market with ‘no bottom’. The indicator would eventually end the worst Australian wool selling season for over 40 years at 1116auc.

When discussing the events of the past 12 months with industry notables who have been around 40-50 years or more, all comment they cannot remember a worse environment as far as trading conditions are concerned. The market has had other difficult periods but nothing as damaging or sustained as we have seen in 2019/20.

Given the EMI is now at 890auc as at 10th September 2020 a reduction of over 800auc on July 1st 2019 Wool Growers are making business decisions based around whether it will even be profitable to continue to grow merino wool.

Growers have also just emerged from one of the worst droughts on record that has decimated sheep numbers and cash reserves which have been spent on feeding sheep to keep them alive the last 4 years. Most Growers in the industry these days want to be growing merino wool for a variety of reasons but a sustained longer term EMI under 1000auc would force a lot of farms to look at alternatives uses for profitability. This might be more cattle production, cropping or sheep meat breeds that don’t necessarily grow merino wool.

Now that the drought has mostly broken in Eastern Australia we are seeing the wool quality improve dramatically with yields well up on last year along with length. This also means VM has increased and the average micron of the clip has also shifted coarser. There will be more T55 this year and less T54PPP.

Forecast for the Australian wool clip for 2020/2021 is 280mkg greasy a drop of 1.1% on 2019/2020 or approx. 1.6m bales.

There has been a bit written in the local media recently about a potential Grower stockpile of wool being held unsold in Brokers stores. Some of the estimates are wildly inaccurate though we can say for sure it is as high as it has been for many years as growers resist selling at current levels and making a loss. There is no official figure for this but some would suggest it is potentially between 300-400,000 bales.

China over the last 12 months bought 75.8% of the wool clip, not a big change on previous seasons however for the period of April to June more than 90% of wool exported from Australia was destined for China. It is not worth considering where the industry would be over the last 6 months had China not been open for business.

A healthy normal functioning market needs deep and broad competition from both sides and we have seen Europe and India almost completely disappear from sale rooms recently. China has continued to support the market despite demand issues and uncertainty at their end with processed wool exports from China also stopping almost completely.  Have we seen the bottom, maybe but we won’t really know for sure until much later in the season.

Can downstream demand get worse than where it currently sits, perhaps not but there is nothing to indicate a sharp recovery either. Wool will be so much more attractive to garment manufacturers at these Usc levels that it’s easy to see plenty of positives coming out of the environment we are in whenever that may be. Over the last 2 years wool certainly had reached a price point that was increasingly hard to pass on further down the chain.

Worsted fabric will certainly have its own challenges when you consider how much of the world’s office workers are currently working from home without the need to put on a jacket or suit daily. Social experts predict that office work may never be the same again now that employers have seen their business can function without all employees in the building. This means less suiting fabric but being the optimist I am might mean more knitwear sales as work dress is casualised. Still a win for wool!

Challenges will be great this season as the industry looks to get back to profitability and more stable trading conditions. The threat of macro political jousting between our two Governments affecting wool as collateral damage worries us all no doubt.

The strong ties and relationships our two industries have built especially over the last 25 years could serve as an example to our politicians of what working together looks like.

Nothing is ever perfect and regrettably there have been issues this year between Exporter and Buyer with the market behaving as it has. Can we always improve on this, of course and by keeping dialog open between our associations hopefully we can get to a point in time where we can say no such problems occur anymore.

Australian Exporters are sad not to be in China for the conference this year with many of us having not travelled for almost 12 months now. Keeping up agent and client relationships without meeting in person can de hard but it will make the next conference we all get to that much more rewarding.

Thank you Mdm. Yang as always for the time and effort SDICN put into the conference and to the industry as a whole, a thankless task at times but one that is very much appreciated by all.

Good luck to everyone for the next 12 months and most importantly of all please be safe.