Outlook for Wool

Jammie Penm

Chief Commodity Analyst

ABARE

Outline

• World demand and supply trends

• Australian sheep flock and wool production

• Implications and price projections

World demand and supply trends

• World wool consumption has declined

• But sheep numbers and wool production also declined

• More sheep meat production led to lower supplies of fine wool

World fibre consumption

20

40

60

80

100

1970 1990 1993 1996 1999 2002 2005 2008

0.5

1

1.5

2

2.5

Mt

Source: International Wool Textile Organisation

woolall fibres

Mt clean equivalent

Wool (right axis)

All fibres (left axis)

Sheep numbers, by country

20

40

60

80

100

120

140

160

180

Australia NewZealand

SouthAfrica

Argentina Uruguay UnitedKingdom

1990

2008

million head

Source: International Wool Textile Organisation

Wool production, by country

100

200

300

400

500

600

700

Australia NewZealand

SouthAfrica

Argentina Uruguay UnitedKingdom

1990

2008

kt clean equivalent

production on a seasonal basis (e.g. 2008 = 2007-08)

Source: International Wool Textile Organisation

World wool production, by IWTO grade

200

400

600

800

1000

fine medium coarse

1990

2000

2008

kt clean equivalent

production on a seasonal basis (e.g. 2008 = 2007-08)

Source: International Wool Textile Organisation

≤ 24.5µm 24.6 – 32.5µm > 32.5µm

Australian sheep industry

• Australian lamb slaughters are up

• Wool producers focus more on fine wool production

• Developments in China important to Australian wool industry

Wool production & lamb slaughterings Australia

60

80

100

120

140

1990-91

1992-93

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07

2008-09

greasy wool production

lamb slaughterings

Source: ABARE

index 1990-91=100

Micron profile of Australian wool clip

200

400

600

800

1000

1991-92 1994-95 1997-98 2000-01 2003-04 2006-07

19.6-22.5µm

24.6+µm

kt

greasy weight

22.6-24.5µm

0.0-19.5µm

Source: Australian Wool Testing Authority

2008-09

China71%

Other11%

Korea2%

Japan1%

India6%

EU 258%

Chinese Taipei

1%

Australian wool export destinations

Source: ABARE

2008/09 439 kt greasy

equivalent*

*includes greasy, semi-processed and wool on skins

A few observations• China’s wool demand is projected to rise as growth

in demand for textiles & clothing continues

• Competition from other low cost countries will increase over time

• China needs to produce high-quality woollen textiles & clothing to compete

• To achieve that China will have to import more fine wool

Chinese exports of woollen textiles and clothing

20

40

60

80

100

120

140

1995 2000 2007

woollen textiles woollen clothing

kt

Source: International Wool Textile Organisation

Chinese wool production

100

200

300

400

1985 1988 1991 1994 1997 2000 2003 2006

semi-fine 25.1- 40 μm

kt

fine ≤25 μm

Source: China Statistical Yearbook

2008

coarse 40.1 μm

Implications for the future

• Australia will be a major world supplier of fine wool

• Australian sheep flock will rebuild only gradually

• Fine wool prices to be supported by limited supply

Summary of ABARE’s wool outlook for 2010-11

• EMI to average 920 c/kg clean

• Export volume to fall 4% to 385 kt greasy equivalent

• Export value: $2.06 billion

• Sheep flock to increase gradually from 2011-12