WEAK wool retail sales for the Northern Hemisphere autumn/winter season could further exacerbate the current “hand-to-mouth” buying of mills who have limited reserves.
This is according to National Council of Wool Selling Brokers of Australia chief executive Chris Wilcox who said while there was some improvement in retail sales in some countries, recent data of sales between October 2015 and January 2016 revealed growth was lacklustre.
This is the critical season of sales for wool with nearly two-thirds of the world’s annual sales made in the four months.
While three of the six major wool consuming countries recorded growth rates in the full year of 2015 above the 2014 levels, only United Kingdom and Italy growth rates rose during autumn/winter season and were by less than one per cent.
China, United States, Japan and Germany all experienced a decline in growth rate in sales on last year’s October-January sales.
“Given the weak growth rates, retailers will be cautious in their ordering for the 2016 autumn/winter period, which would have started in April,” Mr Wilcox said.
However, he said retailers would be moderately encouraged by the outlook for economic growth - a driver of consumers’ propensity to spend.
The International Monetary Fund believes economic growth would improve in the US and in Europe in 2016 and 2017, however Mr Wilcox said this was forecast to be fragile.
“It predicts economic growth will be very low or negative in Japan,” Mr Wilcox said.
“As well, China’s economic growth rate is slowing as the Chinese economy changes from one based on manufacture-and-export to a more mature economy based on the domestic consumer and service industries.”
The “hand-to-mouth” buying was the result of sluggish demand, according to Mecardo market analyst Matt Dalgleish, who said the extent of this contracted demand was being off-set by the 8.7 per cent fall in Australian wool supply.
“Hand-to-mouth” buying is a strategy with frequent purchases in small quantities to meet immediate short-term production.
“Grower stocks are at extremely low levels, the sheep flock at record lows; and with anecdotal evidence suggesting more sheep have been early shorn and sold on account of the drought, supply will remain tight,” Mr Dalgleish said.
“This will at least support the market, but also apply supply pressure to brokers, buyers and processors.”
Last week, the Australian Wool Exchange Eastern Market Indicator peaked at 1291 cents per kilogram clean.
Scott Carmody, wool buyer for Lempriere Australia and Global Wool, said the supply shortage was driving the market price.
“Most commodity markets across the world are in reverse at the moment,” Mr Carmody said.
“To see wool stagnant and slightly better is a positive story in the overall scheme of international commerce at the moment.”