Consistent price gains hid looming danger

Consistent price gains hid looming danger


Sheep
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An overcapacity of machinery used in wool manufacturing is surely partly responsible for the exaggerated magnitude of the falls the market has seen.

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The recent turbulent wool market events highlight the record high wool prices and the global economic slump has indeed dampened demand for wool.

On top of that, the US-Sino trade imbalance dispute, Brexit, Hong Kong and Iran are all factors that have killed off any remaining confidence.

An overcapacity of machinery used in wool manufacturing is surely partly responsible for the exaggerated magnitude of the falls the market has seen.

In recent years, new wool products were developed alongside products from the traditional manufacturing sector - all were held in high esteem and high in value compared to other textiles.

Wool textile manufacturing was an attractive and highly profitable business at relatively low-cost entry points at the first stage compared to the high-tech industries, encouraging expansion in wool processing and copying of innovative garments.

The consistent price gains of the past 10 years though hid the looming danger of overcapacity.

Many companies were competing for the top spots, investing in new but also old machines as they fought for the market share to go their way by building capacity.

While the products were still valuable in comparison to non-wool yarns and garments, those factories' output sale value decreased as competition for sales of the same products intensified to satisfy machinery demand.

Over the years this has created substantial overcapacity in the Chinese manufacturing sector and inevitably when things turn against them, dumping of product at cheap prices occurs, particularly when some were manufactured under hidden loss structure businesses.

But the more companies invested the more competition grew for market share.

While competition up to a certain level is good and encourages innovation, too much is too much.

The overcapacity in wool textile manufacturing is large and it is thought that there is enough machinery in China to process the annual wool clip a few times over each year.

The first casualties among the wool supply chain operators are more than likely going to be the first stage manufacturers.

It's critical for industry to shed the overcapacity before the market values for all textiles decrease further.

Reductions in staff and operational costs are being addressed on an industry-wide basis, and efficiencies in production are being implemented.

Many new and innovative uses of wool are being implemented, while research and development will ensure that wool is the fibre of choice, remains in fashion and continues to command premium pricing over other fabrics.

Confidence will eventually recover and coupled with the shrinking supply will see stronger competition and higher prices return.

With the continued adoption of improved operating conditions throughout the pipeline, the efficiencies gained should enable a higher price for raw materials to be sustained.

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