Australian woolgrowers are feeling the brunt of China's power shortage as nationwide restrictions on electricity use shuts down some Chinese processing mills.
Government regulations on energy consumption, as well as skyrocketing coal prices, have led to electricity rationing and forced a number of processing factories to suspend or reduce operations in China.
The potential impact to China's early-stage wool processors reverberated through Australian wool auction rooms last week with the Eastern Market Indicator, closing the week at 1337 cents a kilogram, down 31c/kg.
Grower resistance to the price drop led to a high pass-in rate of 23 per cent.
But Australian Council of Wool Exporters and Processors president Josh Lamb said Chinese buyers expected potential partial shutdowns for up to six months, with the full impact of the electricity rationing on textile mills understood when China's major Golden Week holiday finishes on Monday.
"The Chinese government has put restrictions on electricity use, which has had an immediate impact on its manufacturing sector and on global markets such as wool," Mr Lamb said.
"Most mills do go through power restrictions through summer in China, but this is the first time there are restrictions outside of that period.
"It could put a dampener on the market over the next few months if mills can't run at 100pc capacity.
"But what we see at this time of the year, China [mills] are busy producing for the northern hemisphere winter, so they are not focused on procuring greasy wool."
Energy-intensive sectors like textiles face the strictest power rationing, a move meant to improve both the current shortages but also work toward long-term emissions reduction goals.
China's latest five-year economic plan targets a 13.5pc reduction in the amount of energy used to produce each unit of gross domestic product by 2025.
Power rationing and forced cuts to factory production in China have expanded to more than 10 provinces, according to Mr Lamb, including economic powerhouses Jiangsu, Zhejiang and Guangdong.
Factory owners are reporting the local governments were rationing power by cutting off electricity three out of every 10 days.
"The only way they will be free to continue unrestricted is if they have solar power," he said.
"There are still a lot of unknowns... no one knows what the medium impact will be.
"It is hand-to-mouth [for Merino wool] and has been for a good 12 months now so there isn't a huge amount of stock - mills will need to accumulate greasy inventory."
He said China purchased 86.6pc of Australia's wool exports last financial year, with the impact of the power cuts expected to be evident this quarter.
"While the export industry in Australia is worried on a daily basis with the overall relationship with Australia and China, on an industry level, wool has always had good communication at an association and client level.
"We haven't seen anything to indicate that there is a major problem, but what we know is that it isn't a problem until it is a problem.
"We haven't had any trouble doing business in the last 18 months but you never know what is around the corner."
Australian Wool Exchange reported the value of the wool sold last week was $53.5 million, averaging $1736 per bale, with more than 42,000 bales set to be offered this week.
Annabelle Cleeland
Annabelle Cleeland is a Stock & Land journalist. She has worked at Australian Community Media for more than a decade serving in a number of roles including editor, senior journalist and national sheep & wool writer. She runs a fine Merino wool property with her young family in North-East Victoria.
Annabelle Cleeland is a Stock & Land journalist. She has worked at Australian Community Media for more than a decade serving in a number of roles including editor, senior journalist and national sheep & wool writer. She runs a fine Merino wool property with her young family in North-East Victoria.
