Monthly Market Reports

June 2013

28 June 2013

This month, we continue our investigation for the potential causes of the decline in price offered for superfine and ultrafine wool, with particular focus on ‘spinners’ or Australian Superfine-typed fleeces.

Superfine fleece wool prices

Australian Superfine fleece types (ASF) are a premium subset of Merino fleece, of the highest categories of style grade (‘spinners’ types), and typically exhibiting the traditional Saxon crimping and whiteness attributes. Historically, ASF types have attracted substantially higher prices compared to lesser style wools of the same fibre diameter. For example, 16.6 to 18.6 micron ASF types attracted an average 40% higher price per kilogram that lesser style fleece in the same diameter categories, for the period from July 2001 to December 2008. The basis for this premium has historically reflected the predominant fabric destination for these ‘spinners’ types – as premium worsted suiting materials for brands such as Zegna, Cerruti, and Guabello in Italy, Cheil in Korea, and Fuji Keori in Japan.

However, corresponding with the impact of the Global Financial Crisis (GFC) from mid-2008/09, there appears to have been a dramatic decline in the fortunes of ASF types, and consequently, prices received by suppliers – with average premiums declining to around 9% for the period since. The nature of this sudden ‘step’ change tends to rule out potential explanations such as technology, fashion or supply side changes, and suggests GFC-induced impacts on those involved in this niche processing sector.

Structural change

The following chart shows some trends in ‘who’ purchased ASF-typed wools in Australia, over the period from 2002 to the present season.

Through the entire period, the consistently dominant buyer of ASF types have been New England Wool (supplying Reda/Barberis), and to a lesser extent, the Schneider Australia (supplying Loro Piana, E.Zegna).

Four historically substantive buyers of ASF types left the market between 2007 and 2010, shown by the green line – Itochu, Cheil, Keirnan, and Dewavrin. As these ‘4 notable departees’ exited this market, 7 new buyers progressively entered the space, notably including representatives of Chinese interests, such as Donghai, Tianyu and Viterra. According to trade contacts, many of these will have started to include ASF types in their specifications only as ASF prices dropped sufficiently to fit within topmaker-type price limits. We also suspect that a large number of minor Italian interests have also left the market following the GFC – these had previously purchased ASF types from suppliers for commission combing and spinning, and represented an important secondary market.

Analysis of import and export data from Italy highlights the GFC impact, and that there has been little recovery to-date. Fabric exports have recovered to only one third of 2003 – 2006 levels (20 mkg vs 60 mkg).

Implications

The dramatic loss of price differential between ASF types and less style wools appears to reflect a structural change in the industry associated with the impacts of the Global Financial Crisis, which has impacted traditional ASF-using spinners and weavers in Japan, Korea, and most notably Italy. An implication of this structural change is that specialist competition for ASF types has declined.
Nonetheless, AWI is working hard to re-invigorate demand for these specialist technical types, as can be seen in our support for Ermenegildo Zegna’s recent international media initiative and 50th Wool Awards in Australia (has generated over $26 million in global editorial value to-date), and our on-going No Finer Feeling and Gold Woolmark programs. In addition, AWI is considering some specific product development and specification opportunities for finer crimping fine wool types.

Chinese RMB appreciates

Since the start of 2013, Chinese currency (the Renmimbi or RMB) has appreciated rapidly against the US dollar. The RMB has appreciated by over 1.4 precent against the Greenback in the last 2 months alone, more than its appreciation bandwidth of 1 precent for the 2012 full year. RMB appreciation, just like our AUD appreciation, has significant impact on foreign trade, acting to improve the conditions of China’s import industries by effectively depreciating the costs of imports. However, it has a negative impact on China’s exports. While appreciation of the RMB has been expected, the rapidity of the recent changes has caused uncertainty among Chinese exporters and processors – especially those who rely on low cost structures for competitive advantage.