THE commodity price boom has rubbed off on the wool market with prices recovering from last year’s lows, according to a market analyst.
Rabobank analyst Dennis Voznesenski said the global economic recovery was driving demand for commodities and this was having a knock-on effect on wool.
“These factors are having an impact on the price of other fibres, including cotton, while synthetic fibres which are derived from oil have also been part of the commodity boom,” Mr Voznesenski said.
Cotton prices have increased by 15 per cent this year, with oil up by 47 per cent in the year to date.
While cotton is not a direct substitute for wool, Mr Voznesenski said cotton prices had a positive relationship to wool in the bank’s modelling, reflecting general demand for apparel. He said moves in cotton were commonly associated with similar direction in wool.
“Even though cotton prices have been rising, we have actually seen wool prices rise faster,” he said.
“The price spread between wool and cotton in US dollar terms has been increasing since late last year, indicating wool is becoming more expensive relative to cotton.”
However, wool was starting from a low base, with the smallest spreads in over a decade recorded in August last year, and it is still yet to reach the five-year average.
Mr Voznesenski said while wool prices had not risen to seven-year highs like some other soft commodities, the Eastern Market Indicator was 27 per cent higher than at the beginning of the year and had cracked through the 1400c/kg mark for the first time in over a year.
“Superfine wool micron prices have left coarser wool behind, recovering the price drops from last year and now exceeding prices from early 2020,” he said.
Prices for 17-micron wool are up 88 per cent since last year’s September low.
While medium wools have recovered, they have not seen the same rise in prices, with 20- micron wool increasing 62 per cent over the same period.
Mr Voznesenski said better apparel sales in key end markets, particularly for knitwear and the close to skin sectors, together with an improvement in processor sentiment was largely behind the upswing, Rabobank’s latest forecast has the EMI trading between the 1450/kg to 1600/kg range through to June 2022.
“Demand indicators for wool are positive almost across the board,” he said.
“US retail apparel sales are 9.2 per cent higher in April this year than 2019, and over 700 per cent higher than the lows during the main pandemic period of April 2020.”
The situation is similar in China, with retail apparel sales up 2.5 per cent on pre-pandemic April 2019 figures and in Britain sales are only down 6.2 per cent on April 2019.
Mr Voznesenski said it was a different story for suits as people were not returning to the office just yet but US woollen suit imports were at their highest level since the pandemic, although still 74 per cent down on 2019 levels.
“While suits aren’t back yet, wool is finding other avenues – such as the knitwear and active-wear categories – and the growth in prices is coming back,” he said.
Mr Voznesenski said the high commodity prices were likely to maintain a positive but conservative influence on wool prices.