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| Issue date:01/04/2006 |
| ATA Journal for Asia on Textile & Apparel - Apr 2006 Issue |
| Source:Journal for Asia on Textile & Apparel |
| by Au Kin-Fan and Carrie Wong |
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| Global wool consumption has stabilized in recent years after the significant drop in the 1990s. The international wool market is expected to benefit from the current fashion trends and the high oil prices, which increased the price competitiveness of wool against the synthetics |
Wool is one of the most commonly used natural textile fibers with outstanding aesthetic appeal and functional properties in textile and apparel products. The distinctive characteristics of the fiber include light-weight, durable, comfortable hand-feel, and also superior fire-and thermal-resistances. Wool is therefore very suitable for producing fine apparel products and home textiles, such as floor carpets and blankets.
The world wool market has undergone a harsh environment since the last decade with strong competition from man-made fibers. Despite the fact that both global wool production and consumption have depicted a declining trend since the 1990s, wool exporting is still important foreign revenue for key producing countries like Australia and New Zealand.
World wool production
Figure 1: World wool production, 1990/91 - 2005/06 |
As illustrated in Figure 1, both greasy and clean wool productions have witnessed declining trend from 1990 to 2004. The persistent reduction in global wool production was significant during the early 1990s. Greasy wool production fell by 4% to 2.9 Mn tons in 1992/93, after a decline of 9.2% in 1991/92 marketing year. The falling trend in global wool output tended to level off since the late 1990s and maintained a steady output of 2.1 to 2.3 Mn tons from 2001 to 2004. Production of greasy wool in the world is estimated to have a modest increase of 1.4 % in 2004/05 marketing year, valued at 2.16 Mn tons. Clean wool production is estimated to reduce by more than 35 % from 1990/91 to 1.27 Mn tons in 2005/06, with declines occurred in most of the major producing countries.
Table 1: Australian wool production
Source: Australian Wool Production Forecast Report, June 2005 |
Likewise for Australia and New Zealand, the world's major wool producers, both registered downward trends in their wool production. The output of wool for Australia even reached a 50-year low in the 2000's. The unfavorable weather conditions in Australia in recent times diminished the hope for higher wool production and the outturn is predicted at about 475 Mn kg in 2004/05 and slightly reduced to 470 Mn kg in 2005/06, as projected by the Australian Wool Innovation's Forecasting Committees (Table 1).
With wool production bottomed in the 2003/04 season, New Zealand was expected to enjoy a modest increase of 2.9 % to 180 Mn tons in 2004/05 marketing year. However, the rebound in New Zealand's wool production for the 2005/06 season would be much hampered by the adverse climatic conditions such as droughts and floods in some parts of New Zealand, hence the annual wool output would be affected by the delay in the second shearing.
Figure 2: Trends in world wool consumption
(i) Marketing year: from 1 July to June 30; (ii) 2004/05 is estimate; (iii) 2005/06 is forecast |
World wool consumption
The world's wool demand is seen to exhibit a decreasing trend since the early 90s. Raw wool demand in the 1991/92 season amounted to around 1.69 Mn tons, a 25% higher than the current marketing year of 2004/05. Figure 2 shows the global wool consumption pattern from 1991/92 to 2004/05 marketing year. It indicates that there was a substantial fall in the world wool consumption in the 1990s. The global wool demand has bottomed to a 10-year low of 1.3 Mn tons in the 1998/99 marketing year, representing a 23% fall from the figure in 1991/92. The declining trend in wool consumption was mainly attributed to the intense competition from low-priced man-made fibers, especially the acrylic fibers which are manufactured to resemble the properties of wool. At the same time, sophisticated techniques and advanced technical developments in man-made fibers providing a wide range of texture choices and innovative functions in apparel and textiles products, also result in more substitutions to wool and challenge its privileged position in the fiber market.
Starting from the 2000/01 season, the global wool market has turned out relatively stable and shows encouraging signs of increased demand for wool fibers. Current fashion trends for worsted suits, soft and light tweeds, coupled with the increasing demand for blends with other synthetic fibers; all favored a greater demand for wool worldwide. Global wool consumption recovered from its record low in 1998/99 and then increased by 8.9% to 1.42 Mn tons in 2000/01. After this, the world's wool demand slumped slightly to around 1.36 Mn tons in the later periods and presumed to remain stable in 2004/05. However, the markedly rise in crude oil price since mid-2005 to US$70 per barrel resulting in a higher price for synthetics would lead to wool demand to remain stagnant at around 1.36 Mn tons in the 2005/06 season.
Figure 3: Leading wool consuming nations |
Nowadays, the major wool fiber consumers in the world include China, EU and Japan, altogether they constituted about two-third of the world's total wool consumption (Figure 3). In this case, global wool demand is heavily commanded by China, the world's largest wool fiber consuming nation. Since the year 2000, China has assumed over 30% share of the world's wool consumption. An estimated indicated that China would consume 500,000 tons of wool in 2004/05 marketing year, accounting for about 37% world share. The continued increase in China's wool fiber consumption is attributed to improved personal income levels, strong growth in its textile and clothing exports and together with the buoyant performance in local clothing retail. All these factors have exerted a positive influence on the persistent growth of wool consumption in China.
On the other hand, wool fiber consumption in both EU and Japan exhibited a decreasing trend. In Japan, wool consumption declined from 34,000 tons to 25,000 tons between 2000/01 and 2004/05 seasons. It was estimated that Japan would consume about 1.8% of the world's wool fiber in 2005/06 marketing year with a recorded bottom. In addition, the continued weak economic situation in the European countries has also affected the domestic wool fiber demand. Wool consumption in EU decreased from 325,000 tons in 2000/01 to 290,000 tons in 2004/05, representing a 10.8% fall. The downward trend in EU's wool consumption is attributed to the further rationalization and relocation of the early stage of wool processing to other low-cost developing countries especially in Eastern Europe, ahead of the mandate under the Agreement in Textile and Clothing for the removal of quotas for textiles and clothing trade on January 1, 2005.
Figure 4: Trends in wool prices |
Trends in wool prices
As the world's major wool producers and exporters, Australia and New Zealand assume a leading role in setting the international wool prices in the market. In this connection, global wool prices are mainly represented by the Eastern Market Indicator (EMI) for Australia and the New Zealand Strong Indicator (NZSI). Since the beginning of 2003, both wool price indicators have shown continued decreases after the price hike in 2002 (Figure 4).
The continuous rise in crude oil price has pushed up the cost of raw materials for synthetic fibers, a major competitor for wool, by nearly 100% since 2003. In light of this, wool has turned to become more price-competitive than synthetics. In addition, the volatile currency exchange rate in recent years is also a critical factor for determining the international wool prices. Since both Australian and New Zealand dollars have appreciated significantly against the weakening US dollar since the early 2000s, thus inducing a major impact on the wool price levels.
As a result, the EMI dropped from its peak of A$11.72 per kg (Jan 2003) to a low of A$6.92 per kg at the end of August 2005, which represented a substantial decline of 40% in price. During the same period, NZSI also plummeted from the highest point of NZ$4.51 per kg (Jan 2003) to NZ$3.3 per kg (August 2005), representing a significant fall of 26 %.
With production and consumption staying broadly in balance in the foreseeable future, it appears unlikely that wool price will rise markedly in the immediate and short-term future.
At the same time, NZSI is forecasted to rise steadily in 2005/06 season, after bottomed at the recent low of NZ$3.55 in the second quarter of 2005. The Ministry of Agriculture and Forestry (MAF) of New Zealand forecasted that wool price will increase to NZ$4.48 by 2006. The growing domestic and international demand for wool fibers, in particular with the fast economic growth of China and other Asian countries, plus an assumed depreciation of the NZD are projected to boost the New Zealand wool price.
China as a major determinant of future demand
The future prospect of the world wool market is heavily relied on China, the largest raw-wool importer and finished wool apparel exporter. The country took up about 65% and 20% of Australia's and New Zealand's raw-wool exports respectively in 2004. The demand of China is therefore a vital factor in determining the fiber consumption in the global wool market.
China's economy is expected to pose an optimistic outlook with a predicted economic growth of 8.9% in 2005 and 8.0% in 2006 (ADB Asia Economic Monitor). In addition, the improving income level, encouraging retail sales performance coupled with the expected increase in textiles and clothing exports after quota phase-out, all provided an impetus on the persistent growth of wool fiber consumption by the country. According to The Woolmark Company (TWC), sales of wool type products have been growing at double-digits in China, particularly with men's suits. While the economic environment of other major wool consuming countries such as Japan, the US and EU are expected to undergo continued moderate growth in the coming years. Hence, this would balance out the anticipated large increase in wool fiber consumption in the near future.
Furthermore, currency revaluation also plays a significant role in determining the future of the world wool market. Since China has revalued its currency in July last year, the appreciation of China's currency would lead to a reduction in the price of the imported fiber in Chinese currency terms. In this case, imported wool fibers would be less expensive for the Chinese mills and consumers, and in turn provide a lift in China's demand for raw wool. Towards this end, wool consumption in China is expected to remain strong in the coming years.
Conclusion
Although wool has lost its market share to man-made fibers in the textile and apparel field in recent decades, the unique properties of wool among the major textile fibers are still appealing. Wool fiber has been actively modified in property to migrate from traditional end uses to newer and wider functional applications. Much efforts are devoted to make woollen apparel products more marketable with enhanced properties, for instance easy-care, comfort to wear and washability functions. With improved developments, global wool consumption has basically stabilized in recent years after the significant drop in the 1990s. In addition, the current fashion trend in fine suiting, together with the fast-paced surging demand by East and Southeast Asian countries, combined with the substantial increase of China's textile and clothing exports, all have strengthened the demand for wool. Furthermore, the sustained high oil prices have boosted the relative price competitiveness of wool against the synthetics; all these are seen to exert positive influences in the international wool market.
Au Kin-Fan is an associate professor, and Carrie Wong is a PhD candidate, at the Institute of Textiles and Clothing, Hong Kong Polytechnic University.
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| Copyright © Adsale Publishing Limited. Any party needs to reprint any part of the content should get the written approval from Adsale Publishing Ltd and quote the source "ATA Journal for Asia on Textile & Apparel", Adsale Textile English Website - www.AdsaleATA.com. We reserve the right to take legal action against any party who reprints any part of this article without acknowledgement. For enquiry, please contact Editorial Department. |
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