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Slowdown in China’s Wool Textile Sector

17 July 2014

There is a clear divergence between conditions in the wool textile industry in China compared with the business conditions in other processing countries, according to a report from the American Sheep Industry Association in the Wool Journal.

Business conditions continue to improve in the wool textile industries of India, the Czech Republic, the UK, Egypt, Malaysia and elsewhere.

Italy’s wool textile industry is also seeing a modest improvement. This is being reflected in the trends in raw wool demand by these countries, as shown in the chart below. India and ‘other’ countries (which include Malaysia, Egypt, Thailand, Japan, Korea and Taiwan) have seen strong increases in raw wool demand, notably since the start of 2014.
In contrast, China’s raw wool demand has dived since reaching a peak in October last year.

The double-whammy of a sharp drop in the growth of retail sales of clothing in China’s domestic economy and weak export demand for wool clothing came at the same time that China’s raw wool demand reached a peak. As a result, excess stocks of raw and semi-processed wool built-up within China’s wool textile industry. Chinese mills have reacted with a sharp pull-back in raw wool purchases.

Total raw wool demand has also declined in concert with the decline in China’s demand, in spite of the growth seen in demand by other countries. This is because of China’s dominant position in raw wool purchases. It accounted for 62 per cent of raw wool exports from the five major exporting countries in the 12 months to April.

The same trends are being seen in US exports of raw wool. As shown in the chart on the back page, the US exports of raw wool to China has declined so far in the US wool season (October to April), but exports to India and ‘other’ countries have increased. Even so, total US exports have fallen.

A recovery in total raw wool demand hinges on China.

After recording a solid rise in calendar year 2013, raw wool exports by the major wool exporting countries has been much more variable in 2014 mainly as a result of differences in China’s demand.

The two largest exporting countries, Australia and New Zealand, have both recorded significant declines in their exports so far in 2014. These sharp falls are due to a combination of lower raw wool production in both countries and a drop in demand by China, their major export customer. China accounts for three-quarters of Australia’s exports and half of New Zealand’s exports.

South Africa’s exports have also fallen in 2014 to April, although to a smaller extent because raw wool supply in South Africa has increased.

China is also South Africa’s major export destination, accounting for around 60 per cent of South Africa’s exports. South Africa’s exports to China have lifted by 5 per cent. The other country to see a fall in its exports is the US – China accounted for 41 per cent of the US exports in 2013.

In contrast to these falls, exports from Argentina and Uruguay have both recorded modest increases in 2014. China accounts for half of Uruguay’s exports and Uruguay’s exports to China have lifted by 12 per cent so far in 2014.

While the slowdown in China’s raw wool demand has been the major influence on raw wool demand from some countries (notably Australia and New Zealand), the slowdown has not been consistent across all exporting countries.

Clear divergent trends have emerged in the past six months or more in the prices for apparel wool compared with prices for wool used in interior textiles.

Prices for apparel wool has generally drifted lower in the past few months, as indicated by the prices for Australian and South African 22 micron wool.

This reflects the poor retail sales for clothing over the recent Fall/Winter period in many countries, notably China; the resultant poor business conditions in the wool textile industry; excess stocks within China’s wool textile industry; and the subdued prices for cotton and synthetic fibres. In spite of this downward drift, 22 micron wool prices are still at historically high levels. As the chart on the back page shows, prices for 22 wool are in the top 15th percentile of prices since 1991.

In contrast to the declining trend in apparel wool prices, prices for wool used in interior textiles have been on an upward trend since mid-2013. The chart shows prices for New Zealand fine-crossbred wool and for UK carpet wool. This upward trend has been pushed along by the recovery in the housing markets in several countries, notably the US, and continued demand for home furnishings in China. This has pushed prices for these wools into the top 10th percentile or better.

Further Reading

You can view the full report by clicking here.

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