Nerve-wracking start to the new decade for the wool industry

Nerve-wracking start to the new decade for the wool industry

Wool
Since news broke about the coronavirus pandemic towards the end of January, wool prices have been highly volatile

Since news broke about the coronavirus pandemic towards the end of January, wool prices have been highly volatile

Aa

Predicting what will happen from here with coronavirus is nigh on impossible, with the situation changing rapidly.

Aa

It has been a turbulent start to the 2020s, notably the pandemic outbreak of coronavirus and the devastating bushfires across eastern and southern Australia.

Predicting what will happen from here with the coronavirus pandemic is nigh on impossible, with the situation changing rapidly. The number of cases continues to rise rapidly.

The Chinese government mandated a longer holiday for Chinese New Year, as well as significant restrictions on movement, particularly in Wuhan, the epicentre of the outbreak.

Wool textile mills have been closed until this week and face the challenge of restarting with restrictions on workers returning from their home provinces.

The global response includes bans on and cessation of flights to and from China.

It will take time before the situation becomes clearer and gets better, but how long before it gets better is anybody's guess.

There will be a blow to economic growth in China and on the world economy, but the level and extent is, of course, unknown.

Keep in mind that China is the supplier of a vast portion of the world's manufactured goods.

The Economist Intelligence Unit has commented that their initial calculations show a hit of between 0.5 per cent and 1.5pc to the economic growth rate in China this year, if the virus spreads in a similar fashion to the 2002 outbreak of SARS.

Forecasts from other economic analysts, such as JP Morgan, agree with this.

The impact will be greatest in the first half of 2020.

How it will affect the Australian wool market is highly uncertain.

Since news broke about the coronavirus pandemic towards the end of January, wool prices have been highly volatile, falling sharply just after the Australia Day weekend, then recovering, then falling before steadying and lifting in the week ending February 7.

Buyers are concerned about ongoing finance if letters of credit are restricted in China and how long it will take for mills to come back into production.

They are also concerned about future supplies of better quality Merino wool.

On the supply side, our thoughts and best wishes are with all those who have been affected by the devastating and widespread bushfires.

We don't know yet what impact the fires will have on wool production this season and next, particularly in terms of the number of sheep deaths.

The better news is that there has been rain across a wide area of eastern and southern Australia in the second half of January and the first week of February, which has removed the fire threat for now and helped relieve the drought situation.

There is hope that the recovery from drought can now begin.

On a positive note, the US and China signed the phase one trade agreement in mid-January.

Disappointingly, the additional 15pc import duty that was imposed in September on US imports of wool clothing from China remains in place.

That means that, for example, US imports of wool sweaters from China have the regular import duty of 16pc plus the additional 15pc duty, a total of 31pc added to the import cost of the sweater from China.

The news isn't all negative, however, the US' added 15pc duty on imports of wool garment from China has seen the US redirect its purchases to other countries.

US imports from these other sources leapt in September to November, with imports from Italy, Vietnam and a number of other countries surging.

Imports from Italy in the three-month period were up 13pc (quantity) and 5pc (value), while imports from Vietnam were up 10pc (quantity) and 9pc (value).

These increases, plus higher imports from a range of other countries, partly offset the decline in US imports from China.

Even so, let's hope the US and China reach the second phase agreement soon and that the agreement includes removal of the higher US duties on wool clothing from China.

In other news, the National Council of Wool Selling Brokers of Australia will celebrate its Centenary this year.

The Centenary of NCWSBA will be marked by the NCWSBA Centenary Auction on February 20, followed by a cocktail reception.

The auction will be held at 120 King Street, Melbourne.

The location of the auction was purpose-built in 1914 for wool auctions and hosted the Melbourne Wool Exchange until 1972.

It was also the location of the first NCWSBA Board meeting in January 1920.

It is currently the Melbourne campus of the Australian Institute of Music.

We have had great support from the Melbourne wool buying fraternity.

The cocktail reception will be held in the Intercontinental Melbourne - The Rialto (the buildings have considerable historical importance for the wool broking industry).

During the reception, we will hold a charity auction of fabric lengths, wool products and vouchers from our supporters and sponsors.

All money raised from the charity auction will be donated to the Michael Manion Wool Industry Foundation.

We have received great support from more than 20 sponsors and NCWSBA members, to cover the cost of holding the event and to provide an additional donation to the Michael Manion Wool Industry Foundation.

The board and I would like to thank the sponsors, NCWSBA members and the buyers for their support.

It should be a great event.

Aa

From the front page

Sponsored by