US, China trade tension may embroil wool

US, China trade tension may embroil wool


Sheep
Australian wool markets have been bubbling along nicely, as new record high prices continue to be set on the crossbred types.

Australian wool markets have been bubbling along nicely, as new record high prices continue to be set on the crossbred types.

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Australian Wool Innovation's Scott Carmody writes about global pressures on the Aussie wool market.

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For the past month, wool markets across Australia have been bubbling along quite nicely. New record high prices continued to be set on the crossbred types, whilst Merino wools enjoyed returns to growers of well over 2000 clean cents a kilogram.

Come mid-May and that idyllic situation hit a hurdle with the re-emergence of the tariff war between the US and China impacting negatively on the market.

The economic reality is the US' action to try and balance the trade with China has had limited impact thus far upon the textile industry in general.

In loose figures, 2018 saw the US export $120 billion of goods to China (aircraft and soy beans mainly) whilst importing more than $500 billion from China, mainly in computers, cell phones, footwear and apparel.

In its attempts to correct its $400 billion trade deficit with China, the imposition of and rises in, import tariffs have put a large dent in business confidence. This lack of confidence is by and large the most significant of factors adversely affecting the wool trade for the interim.

What is now known about the impact of the tariffs, is that cotton imports into China from the US has halved. Historical data shows, on average there is 250,000 tonnes of American cotton sent to China each year. China has now found some of that missing quantity by purchasing additional volume from Australia and Brazil.

Additionally, as a method of lessening the impact of the reduced direct import from the US, interestingly American cotton is now being sold, for example, to countries such as Vietnam. Vietnam complete the first stage process (spinning) the ginned product and then the American cotton still finds its way into the Chinese factories as imported yarn.

Important to note is, similar to wool from Australia, the manufacturers in China still require the high quality cotton raw material from the US in order to convert the fibre into a saleable product to make a margin.

The only alternative would be to let the factory sit idle and lose opportunities.

'Cutting off your nose to spite your face' is not an ethos or strategy Chinese businesses have followed to rise to the top.

The data from reports obtained from October 2018 to May 2019 have shown no apparent decrease in textile and garment exports to the US.

However, further research indicates that some US wholesaling customers have cancelled their orders as a result of trade uncertainties.

In addition, some clients have placed pressure on suppliers and manufacturers, requesting lower prices using the trade tensions as the reason for further negotiation.

This has resulted in trade businesses being unable to accept or fulfil those orders. Hence the trade war is speculated to still have an impact on overall textile export figures.

The biggest question now is how the US China trade war will play out. The tensions and tariffs have already sent markets and investors into a state of uncertainty.

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