2011 a stellar year for wool

Experts all agree that the past 12 months was a stellar year for wool, highlighted by an Eastern Market Indicator (EMI) price peak of 1436 cents/kg clean in June.

While the average EMI for 2011 settled down to 1278c/kg, as reported in the Landmark Wool Weekly December report, it still faired far higher than in recent years.

The wool price turning point began in 2001 when the wool stockpile was finally acquitted, according to Australian Wool Innovation (AWI) market intelligence and reporting manager Paul Swan.

"The wool price rise experienced over the last 12 months is an extension to the underlying upward trend in the $US value of wool since 2001," he said. "The positive trend reflects a combination of demand-side and supply-side factors."

Dr Swan said the increased demand included the emergence of China as an affluent, savvy, wool consuming market.

On a world scale, Dr Swan said an ongoing consumer trend towards all things natural encompassed a distinctive desire to live a lifestyle of health and sustainability.

And in the fashion world, he said wool, especially Merino, was back in vogue, supported by AWI's Merino No Finer Feeling Campaign, the Prince of Wales Campaign for Wool and high-profile Merino ambassadors embracing the fibre, including photographer Anne Geddes and fashion icon Giorgio Armani.

On the supply-side, Dr Swan said the tight supply of wool - especially fine apparel wool - had assisted in raising the value of wool compared to other natural fibre.

"During the stockpile era, the price of wool averaged around three times greater than the price of cotton," he said. "Post-stockpile, the price of wool has averaged 4.5 times the price of cotton." _See table, right. _

Dr Swan said the wool versus cotton fluctuations showed similar patterns to both timeframes and he did not believe this would change anytime soon in the normal course of production.

Australian Wool Industries Secretariat Peter Morgan also referred to the low wool supply as being a major factor for higher prices.

"Production remains at historically low levels," Dr Morgan said.

"Wool production was 345 million kilograms (mkg) in 2010-11, which was down 20 per cent on the 430mkg produced five years ago."

The December wool production forecast for 2011-12 has been revised to 350mkg, up 1.5 per cent on last year but down on the October forecast of 355mkg due to an expectation of lower fleece weights, according to the Australian Wool Production Forecasting Committee chairman Russell Pattinson.

Add to this a rapidly growing middle class in China and a stronger presence in the wool market from Italy, and Dr Morgan said demand for the fibre was "at a very good stage".

He said Italy took 5.1 per cent of Australia's wool exports in 2010-11.

"Italy's share of Australia's wool exports fell from 10 per cent to 2 per cent following the onset of the global financial crisis in 2008," he said.

Dr Morgan said low wool supply offset by competing fibre options and economic growth in major retail consuming countries would dictate how the Australian wool industry played out in 2012.

"While the Chinese domestic market looks positive, wool prices may take a tumble if influenced by the recent fall in cotton prices," he said.

AWI market analyst Allan Wang said China would experience an economic slowdown in 2012, however, demand for luxury products would remain strong.

"China's consumption of wool for processing will continue to grow, and overall, consumption of wool will stabilise," Mr Wang said.

"The increase in Chinese real wage has led to the strong growth in demand for luxury products.

"The Chinese luxury market, like others, appears resilient against global economic slowdowns.

"Consequently, the future of Australian wool market looks bright given the slow recovery of the US and UK economic climate."

Meanwhile, the US National Retail Federation (NRF) upgraded its holiday sales forecast to be up by 3.8 per cent to a record US$469.1 billion.

NRF president Matthew Shay said retailers were cautiously optimistic, but factors including the debt crisis in Europe and continued wrangling in Washington could have an impact on consumer spending in 2012.

Wool will feature in the eye of the Big Apple (New York) at the 81st International Wool and Textile Organisation Congress from May 7 to 9.

Working off the theme Wool in the City, organisers are hoping to draw the attention of prominent New York retailers attending the event.

AWI chief executive Stuart McCullough said plans were in place to sell the wool story in New York and other major destinations in an effort to influence demand.

Also into the new year, National Australia Bank (NAB) has predicted wool prices will average 1139c/kg for 2011-12.

NAB general manager Khan Horne said high wool prices were facing considerable headwinds over the medium term.

"Looking ahead, weakening demand in the big developed countries will test the limit of how low wool prices can go," Mr Horne said.

"Any weakness in Chinese wool imports will most likely be a result of further deterioration of Euro-zone consumer confidence levels."

However, domestic wool uptake in China could offset any loss in textile exports into the new year.