International wool demand grinds to a halt amid COVID-19

Research by the Australian Wool Exchange indicates there was a $238 million drop in the value of wool sold in the eight-week period from March 16, 2020 compared to the same period in 2019.

As reports of woolgrowers withholding bales rise, a dip in consumer confidence and a halt in retail demand are to blame for the drop in price as the Eastern Market Indication, which is 33 per cent down on the same time last year.

The EMI rose to 1181 cents a kilogram (greasy) this week, but down from 1952c/kg the same time in 2019.

National Council of Wool Selling Brokers of Australia executive director Chris Wilcox said prices were dropping as a result of COVID-19 and the effect it had taken on Australia's wool exporters.

While Italy and India's borders remain closed due to domestic lockdown restrictions, demand from China, the largest importer of Australian wool, is yet to recover. Australia exports 98pc of greasy wool produced with 78pc bought by China.

"It's a difficult market situation because we've seen a real significant drop in demand right through from retail, to garment makers, to knitters, to weavers, to spinners and processors all the way back to the auction market," Mr Wilcox said.

"What we've seen with the destruction of demand is that wool prices have fallen in Australian dollar terms to the lowest since 2015. In US dollars, it's the lowest level in 10 years."

Meanwhile, buyers have significantly reduced and in some cases completely stopped buying wool. Only 17,000-20,000 bales of Australian grown wool is being purchased each week, marking a fall of 43 per cent, with that weekly figure usually upwards of 30,000 bales.

"This is in the context of wool production being 7pc lower this season and forecast to be 2.3pc lower next season," Mr Wilcox said.

AWEX chief executive Mark Grave said the $238m fall in value was comparative to the number of bales offered, sold and the gross value made in the same eight-week period in 2019 and 2020, respectively.

"The market is weaker and there is a lot of downstream demand issues that are affected but the technical specification of the wool may be different with better style wool," Mr Grave said.

"Some of the better wool has actually performed relatively well compared to those that are drought-affected."

Major exporter Modiano Australia buys about 80,000 bales of Australian greasy wool each season.

The wool is purchased for its parent company, G. Modiano London, which is sent to the Czech Republic for processing and then on-sold through Europe.

The company's managing director, Stuart Clayton, said wool had not been purchased for six weeks.

"From a European perspective, business has just fallen off a cliff because none of the products are being sold off shelves so demand has just fallen away right through the chain," he said.

The company has bought 42,000 bales this season with wool purchasing unlikely to pick up anytime soon.

"We don't see any signs we will commence buying in the near future," Mr Clayton said.

"The wool industry is not immune to what's happening in the world ... there's a lot of uncertainty out there."