Raw wool imports were well down in 2016, led by a sharp drop in imports by China (the major

wool processing country) despite strong demand from Europe. Most recent monthly data

suggest that China’s purchases have started to recover.

As shown in the chart below, raw wool imports from the major wool processing countries and

regions in total fell by 7% in 2016 to just 588 mkg, the lowest level in over ten years. The decline

was largely due to an 11% drop in imports by China. Note that the total imports by China, at 372

mkg, is above the low level seen in 2011. It also continues the annual up and down in imports by

China since 2012, with a drop in 2016 due to mills in China cutting purchases to bring excess

stocks under control. China’s imports from the US declined, by 35%.

While China’s raw wool imports dropped sharply in 2016, purchases by the European countries

(mainly Italy, the Czech Republic, Germany, the United Kingdom and Bulgaria) lifted by 9% in

2016. Of this, imports by the Czech Republic increased by 11% and imports by Germany rose by

23%. Italy’s imports were flat. In total, imports by European countries in 2016 were the highest

since 2011, helped by strong demand for Merino wool.

March 2017 >>>

China’s raw wool purchases down in 2016, starting to recover?

Economic indicators point to improvement

Wool exports from New Zealand and Uruguay collapse

Merino wool prices leap, Crossbred wool prices collapse

US lamb prices stable as Australia and NZ prices rise

journal wool A Regular Insight into the U.S. and Global Wool Market

Retail Demand and Economic Conditions

Economic growth in some of the major wool

consuming countries have improved in the past 3

months, which has bolstered world share markets

and pushed up commodity prices. It has also helped

maintain consumer confidence at high levels in the

European Union (EU) and Japan. Furthermore, in

February consumer confidence in the US hit the

highest levels since July 2001. This is encouraging for

improved retail sales in all countries, notably the US,

which should help wool prices.

The chart below shows the trends in the leading

economic indicators in China and in the major

advanced economies compared with the benchmark

Australian Eastern Market Indicator (EMI). The

upturn in the leading indicators in both China and the

advanced economies can be seen, as can the strong

rise in the EMI in recent months.

Wool Textile Industry Conditions

Trends, Drivers and Prospects

Raw wool purchases by India

declined in 2016, by 5%, to 35

mkg which is the lowest level in

over a decade. India’s purchases

from the US also, declined, by

22%.

2016 was a difficult year for raw

wool trade even though prices

for Merino wool performed

relatively well. Encouragingly,

there are clear signs that China’s

raw wool purchases started to

pick up in the last two months of

2016 and in January 2017.

Page 1

Trends, Drivers and Prospects

ASI

Economic Leading IndicatorsTrends in Key Economic Indicators versus the Australian Eastern Market

Indicator in US$

400

600

800

1000

1200

1400

1600

92

94

96

98

100

102

104

CLI - China

CLI - Advanced wool consuming countries

Eastern Market Indicator

EMI UScents/kg cleanindex

Source: OECD, AWEX

* Amplitude adjusted form of the Composite Leading Indicator (CLI) for OECD countries and for China.

CLI to December 2016 pushed out 8 months. Wool prices till w/e 3rd March 2017

Wool Imports by Major Processing Countries(Calendar Year to December)

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

China India Europe Other Total

mkg

gre

asy e

qu

iv.

2010 2011 2012 2013

2014 2015 2016

+9%

-11%

-5%

-7%

Note: From the five major exporting countries (Australia, New Zealand, Argentina, Uruguay and South Africa

Source: Australian Bureau of Statistics, FLA, SUL, Capewools, NZ Meat and Wool

-7%

2017 has started spectacularly for Merino

wool prices after an extended 18-month

period of unusually stable prices. China is

ramping up its purchases of fine wool which

is the main, but not the only driver, for the

increase. But it is shunning wool of 26

microns and broader sourced from New

Zealand and Uruguay, resulting in a collapse

in prices for broad wool.

The question is whether this situation will

continue in coming months? Signs on the

economic front are relatively positive with

leading indicators pointing to a continued

improvement in China and in the advanced

economies. This, coupled with strong

consumer confidence in the US, Europe and

Japan, should provide a good foundation for

retail orders in preparation for the 2017

Fall/Winter. This could in turn sustain the

recent increase in demand for Merino wool

and, hopefully, flow through to demand for

Crossbred wool.

Merino prices might be overheating and

could be due for a correction, although the

upward cycle could last until mid-year as

supplies will be constrained. On the other

hand, Crossbred prices could remain low

before turning up mid-year.

ABARES

Wool Outlook Wool and Fiber Prices

Fine Merino wool prices have surged in the opening months of 2017 as increased demand has been met

by seasonally lower supplies. In contrast, the slump in prices for broader wool continues.

Merino wool prices leapt since December, notably at fine end. As a result, in the first week of March the

Australian Eastern Market Indicator in A$ terms hit the highest level in almost 3 decades. In US$ terms,

superfine Merino wool prices (e.g. 18 micron wool) have jumped by around 15% since December.

Demand for this wool type has increased as supplies have slipped back. Meanwhile, prices for broader

Merino wool (e.g. 21 micron wool) have lifted by around 4%.

At same time, prices for broad wool (26 micron and broader) from New Zealand, Uruguay and the

United Kingdom have slumped in recent months. Since December, the NZ Broad Crossbred (33 to 35

micron) price has dropped by 12% in US$ and the fine Crossbred (25 to 32 micron) price has fallen

7%. The British Wool Marketing Board’s

Market Indicator (which is for very broad

wool used in carpets) has declined by

11% since December. These declines for

this broad wool tallies with the decline in

raw wool exports from NZ and Uruguay.

The chart here shows the recent

divergent trends in wool prices.

As a result of the surge in fine Merino

wool prices and the decline in Crossbred

wool prices, the price differential for

each micron against the benchmark 21

micron price has widened (see chart on

page 3).

March 2017 >>>

Trends, Drivers and Prospects

Trends, Drivers and Prospects

countries mainly produce Merino wool which appears to have seen solid demand throughout 2016. US wool exports also declined by a relatively moderate

3%. Argentina’s wool exports rose sharply, by 18%, in 2016. This increase was almost entirely due to a leap in exports to Europe as mills in that region

sought lower priced Merino wool.

The chart shows the trends in the annual change in wool exports for each country on a rolling 12-month basis.

Page 2

Wool Production and Supply

New Zealand and Uruguay bore the brunt of the decline in raw wool purchases by the

major processing countries in 2016 as demand for wool broader than 26 microns

dropped sharply. Demand for Merino wool was relatively well maintained, helping

exports from Australia, South Africa and Argentina. US wool exports eased a little.

Wool exports from New Zealand and Uruguay collapsed in 2016, dropping by 17% and

22% respectively. Exports from both countries in 2016 were the lowest in 20 years or

more. The main, but by no means the only, driver of this decline was a massive drop in

exports to China. New Zealand’s exports to China fell by 31% in 2016 and Uruguay’s

exports to China dropped by 44%. It appears that China’s mills cut back drastically on

their purchases of the broad, non-Merino wool that it sources from both countries. This

could be due to a combination of excess stocks of wool and wool products made with

this wool and competition from synthetic fibers, notably acrylic.

By comparison, exports by Australia and South Africa fell more moderately. Australia’s

exports slid back by 3% in 2016, while South Africa’s exports eased by 2%. Both

Merino Wool Prices Surge; Broad Wool Prices Dive

0

100

200

300

400

500

600

700

Australia 19um

South Africa 21um

USc/lb

Source: AWEX, Capewools, BWMB, NZ Wool Services

Prices to end February 2017

For Australia price is for 19 micron wool, for South Africa price is for 22 micron wool. For New Zealand, it is for both fine (25-32

micron) and broad (33-38 micron) crossbred wool. For the UK, it is the British Wool Marketing Board Indicator.

0

50

100

150

200

250

300

NZ Fine Xbred

United Kingdom - Broad

NZ Broad Xbred

USc/lb

Wool Exports by USA, NZ and Uruguay Drop,

Exports by Australia, Sth Africa and Argentina Lift12 month rolling aggregate

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Australia

Argentina

South Africa

% change y-o-y

Source: Australian Bureau of Statistics, FLA, SUL, Capewools, NZ Meat and Wool, USDA

Data to January 2017

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

New Zealand

Uruguay

USA

% change y-o-y

These statistics and charts present a snap-shot of the current situation in the global wool industry. The two charts in this edition show consumer confidence

in the major wool consuming countries and the price differences for superfine, fine and broad wool compared with 21 micron wool.

wool statistics…

mkg Month % ch Year to date % ch. Major destinations Trends for season to date

Australia 22.1 +25% 179.0 +9% China, India, Czech Republic, Italy, Korea

China up; Czech Rep, Italy, India, & Korea down

NZ 10.0 -12% 66.2 -17% China, Italy, UK, India, Germany India & Germany up; China down by 37%, UK & Italy down

Uruguay 6.3 +46% 22.0 -14% China, Germ, Turkey, Italy, Bulgaria

Germany up; China down 48%, Turkey, Italy, & Bulgaria down

Argentina 3.0 -7% 23.7 +26% China, Germany, Czech Rep, Italy, Turkey

China, Germany, Czech Republic & Turkey up; Italy down

South Africa 3.8 +39% 25.9 +6% China, Czech Rep, Italy, India, Germany

China, Italy & Czech Rep up; Germany & India down

USA 0.445 +43% 1.865 +5% China, India Other destinations up; China & India down

Sources: ABS, Beef + Lamb NZ, SUL, FLA, Capewools, USDA Notes: Raw and semi-processed wool. Australia, New Zealand, Uruguay, Argentina and South Africa are for January and the Southern Hemisphere season from July to

January. The month for USA is for January and the year to date is the US wool season October to January 2017.

USc/lb clean

Month average

Last year % change Year average Last year % change

Australia 501 449 +11% 500 444 +13%

NZ 117 180 -35% 120 181 -34%

South Africa 503 444 +13% 498 447 +11%

UK 91 116 -21% 91 118 -23%

Sources: AWEX, NZ Wool Services International, Capewools, BWMB Notes: Prices are for February. Australia is the 21 MPG, South Africa is the 21 micron indicator, NZ is 25-32 micron average, UK

is the British Wool Marketing Board Indicator. Year is for the calendar year January to February.

UScents/lb Month average Last year % change Year average Last year % change

Cotton 85.3 66.3 +29% 83.9 67.6 +24%

Synthetics 82.2 72.1 +14% 80.1 72.9 +10%

Wool: cotton 5.87 6.78 -13% 5.96 6.56 -9%

Wool: synthetics 6.09 6.23 -2% 6.25 6.09 +3%

Sources: AWEX, Poimena Analysis, Cotton Outlook, PCI Fibres Notes: Prices are for February. Year is the calendar year to February. The wool:cotton and wool:synthetic ratios are based on 21 micron wool.

Wool Exports >>>

Wool Prices >>>

Fiber Prices and Ratios >>>

Page 3 key

Consumer Confidence High in US, the EU and Japan;

Improving in China; Weak in South Korea

Source: The US Conference Board, the European Commission and www.tradingeconomics.com

Data to February 2017

20

40

60

80

100

120

140

US

EU

Index

Jan 2008 = 100

60

70

80

90

100

110

120

130

140

China

Japan

South Korea

Index

Jan 2008 = 100

Price Differentials Rise for Superfine Merino Wool,

Drop for Broad Wool% relative to 21 micron wool

0%

10%

20%

30%

40%

Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

18 micron

19 micron

% difference

Average since 2010

Source: AWEX,

Data to 3rd March 2017

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

23 micron

28 micron

% difference

Average since 2010

Lamb prices in Australia and New Zealand (the world’s two major exporting

countries) have lifted in recent months while prices in the UK (a major producer

and consumer of lamb) have dropped sharply. While prices have been volatile in

these countries, prices in the US have been remarkably stable at high levels.

As the chart shows, lamb prices in the US have remained at around the same

level for the best part of the past three years. This remarkable stability has been

maintained even though prices in Australia and New Zealand (the two major

lamb meat exporting countries and the major suppliers to the US market) have

seen price volatility over the same period.

In the past 12 months, lamb prices in Australia has risen strongly, lifting by

around 30%. This rise has been fuelled by continued strong demand for lamb

within the Australian domestic market and from key export markets.

Furthermore, the number of sheep and lambs available for slaughter has fallen.

Wool and sheep producers in Australia are holding lambs and sheep back to

rebuild their flocks in response to the higher wool prices. A number of

slaughterhouses have closed recently due to the drop off in slaughter numbers.

Sheepmeat Market

Page 4

Trends, Drivers and Prospects

USc/lb Month average

Last year % change Year average Last year % change

Australia 220 172 +28% 211 170 +25%

NZ 168 145 +16% 168 145 +16%

UK 216 272 -21% 215 263 -18%

US 337 339 -0.4% 339 340 -0.3%

Sources: Meat & Livestock Australia, Beef and Lamb NZ, USDA, UK Agriculture and Horticulture Development Board Notes: Prices are for February (to January for New Zealand). Australia is trade lamb, New Zealand is all export lamb, UK is 12-25kg SQQ lamb, US

is 55-65 lb, choice and prime lamb. Year is calendar year and year average is year to February.

Lamb Prices >>>

Lamb Meat Exports >>>

Million lbs Month % ch Year to date

% ch. Major destinations Trends for calendar year to date

Australia 47.3 -3% 92.2 +5% US, Middle East, China, Hong Kong, the UK

Middle East, China, Hong Kong and the UK up; US, down

NZ N/A N/A N/A N/A N/A N/A

Sources: Australian Bureau of Statistics, Beef + Lamb NZ Notes: Month data is for February and the calendar year from January to February. Data not available for New Zealand

March 2017 >>>

Lamb prices in New Zealand have also risen, by 16%, in the past 12 months due to strong export demand and lower supplies. In contrast to this

improvement, lamb prices in the United Kingdom have fallen sharply in recent months. In US$ terms, UK lamb prices have dropped by 21% year-on-year.

Some of this decline is due to the sharp drop in the UK pound against all currencies following the Brexit vote in mid-2016. Even so, lamb prices in UK

pound are 9% below year earlier levels. There has been significant competition for lamb in the UK from other meats, which has pushed the prices down.

In the short-term, it seems likely that US lamb prices will be maintained, or even improve. The United States Department of Agriculture predicts that,

with lower US sheep numbers at the start of 2017, domestic production of lamb and mutton will decline again in 2016. Furthermore, cold storage stocks

of sheepmeat have dropped to half the levels seen just six months ago. Imports from Australia and NZ are also likely to be restrained. As a result,

available supplies will be low, helping sustain US lamb prices.

Lamb prices in UK drop, steady in the US and

rise in Australia and NZ

0

50

100

150

200

250

300

350

400

USA UK

USc/lb

Source: Meat & Livestock Australia, Beef & Lamb NZ, USDA, UK Agriculture and Horticulture Development Board

Notes: Trade lamb for Australia; all lamb export price for NZ; 55-65 lb, choice and prime lamb for US; Standard

Quality Quotation – 12-25 kg lamb

Data to February 2017 except for New Zealand which is to January 2016

0

50

100

150

200

250

300

350

400

Australia NZ

USc/lb