Spend Matters welcomes another guest post from Nick Smith of Mintec.
Australian wool prices have fallen in recent months, weighed down by weak demand. Prices have dropped off by 15% since the start of the year.
Australia and China are the world’s largest producers of wool, each accounting for around 20% of global production. However, Australia is by far the largest exporter of unprocessed wool, accounting for around half of world exports. Despite being one of the largest producers, China is also the largest importer of wool fiber as low labor costs have led the country to become the world’s leading wool processor. This means that demand from China has a large impact on global price trends.
Australian wool prices have now fallen to their lowest level in over two years. Nevertheless, they remain considerably higher than in previous decades as wool production has fallen significantly with the advent of cheaper man-made fibers such as nylon and polyester. In the early 1990s, Australia produced around 800,000 tons of wool, but a more recent figure is roughly 345,000 tons. Australian wool prices are still above $4.50/lb, compared to the $1.50/lb seen back in 2001.
Spot Australian wool prices are expected to stabilize over the next few weeks as a result of the smaller volumes on offer combined with a recent weakening in the AUD. However, with the current economic climate weighing on global demand for wool, it remains to be seen whether those factors can hold off a drop in prices in the long term.