NZ closes door on worst wool season since the GFC

NZ closes door on worst wool season since the GFC as Chinese demand dries up

By Tina Morrison

July 5 (BusinessDesk) - New Zealand just finished its worst wool season since the global financial crisis as China, the largest buyer of the fibre, switched its preference to fine wool and away from strong wool that makes up the majority of the country's clip.

A total of 420,378 bales were offered at auction in the season that ended June 30, with 311,698 sold, giving an average clearance rate of 74 percent, according to AgriHQ. The number of bales was up 1.1 percent on the previous season as unsold bales were re-offered at auction, while the volume of bales sold dropped 15 percent.

Demand for fine wool for clothing saw the price for 18-micron merino hit $18.60 a kilogram, and the price for 21-micron merino reach $15.60, the highest level for both grades since February 2012. However the picture was less rosy for coarser crossbred wool typically used for carpets, with 35-micron fibre closing down 44 percent to $3.30/kg, the lowest level since January 2010, while 39-micron was also down 44 percent to $3.25/kg, the lowest since May 2010, and 37-micron second-shear wool slumped 50 percent to $2.90/kg, the lowest since October 2009, AgriHQ said.

"We haven't seen a market like this since the global financial crisis," said John Dawson, who is chief executive at New Zealand Wool Services International, the nation's largest wool exporter, and has been in the industry for 39 years. "We haven’t seen extreme movement like this for quite some time. The speed of it took the whole industry by surprise. It’s been one of those seasons that you want to forget."

New Zealand is the world's largest exporter of crossbred wool and weak demand for the fibre, which makes up about 80 percent of the national clip, has weighed on prices this season, prompting farmers to stockpile bales in hopes the market will pick up. Industry estimates suggest between 150,000 to 200,000 bales may have been stockpiled by farmers, brokers, merchants and exporters, as sellers rejected prices below the cost of production.

The Ministry for Primary Industries forecast in its latest quarterly outlook that wool export revenue likely fell 28 percent to $550 million in the year through June as a lack of demand from China weighed on prices. MPI said the country's wool production probably fell 5.3 percent in line with declining sheep numbers, and export volumes probably dropped 16 percent as some wool failed to sell due to low prices.The ministry noted that the overhang of inventory will make it difficult for prices to rise quickly.

"That overhang of wool hasn’t helped the market because everybody knows it’s there," said WSI's Dawson. "It has been a very difficult time for everybody in the industry, all sectors, because obviously, no one enjoys a falling market like this."

Declining prices had also made it difficult to keep contracts in place as some buyers baulked at paying higher prices agreed earlier when the latest spot price was cheaper.

WSI's Dawson said he was hopeful that the current low prices for strong wool may spur overseas demand, although he warned that may take some time to flow through as manufacturers would need to adjust their blends.

"It's been a very difficult season," he said. "You would like to think that we have been through the worst and that we are looking at better times."

He noted that the increased use of man-made fibres such as nylon and polypropylene in carpets had also reduced demand for wool and while some individuals and groups were working on stoking demand for the fibre, New Zealand produced a large amount of wool that needed a market and changing the dynamic for the whole wool clip was "a big ask".

(BusinessDesk)

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