Increasing local demand in mainland China for top quality fashion is helping to support prices for Australian wool.
Prices held up at the first wool auctions for 2014 at around 1130 cents/kg, only marginally below the level set prior to the three-week Christmas recess.
Demand is strong despite a strong offering of 53,000 bales put up for sale.
Australian Wool Innovation says exporters believe a diminished supply of merino wool will be entering the market, reinforced by the dry weather across the country.
The National Australia Bank forecasts a five per cent rise in the Eastern Market Indicator (EMI) for wool over 2013-14, to average around 1091 cents per kilogram.
The outlook is based on the stronger market performance at the end of 2013 and an expected tightening of supply in the first half of this year.
NAB’s Head of Agribusiness for South Australia and Western Australia, Matt O’Dea, said wool recorded six consecutive weekly gains from early November until the Christmas recess.
China is the single largest market for Australian wool, accounting for more than three-quarters of exports.
In 2012-13, the volume of wool exported to China increased by 12 per cent. However, a 14 per cent decline in prices at that time saw the total value of exports fall by five per cent.
This was due in part to poorer demand for Chinese woollen exports from larger consumer countries in the European Union and the US.
However, it was partly counteracted by China’s growing domestic demand for finished woollen products, which increased six per cent.
China now consumes around half of the wool garments it produces, putting it on track to overtake the US as the world’s largest apparel market by 2017.
“While demand for ultrafine and superfine wool has been subdued since the Global Financial Crisis, new knit market development and new blends with silk and cashmere are offering additional opportunities for shorter wools,” Mr O’Dea said.
“Looking ahead, in the near-term we believe that the momentum in the demand for Australian wool exports will continue, supported by a generally improving global economic environment, historically low interest rates and a softer Australian dollar, which benefit wool exports.”
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