By BARRY SAVAGE
Consumer Confidence: Wool demand at the consumer level has seen some very significant changes over recent years. Once some consumer confidence returned after the 2008-2010 global financial crises, textile purchases picked up significantly in all major markets – the United States, Europe and especially in the rapidly expanding China domestic market. Wool prices moved up very rapidly amid fears of lack of supply to the June 2011 peak of U.S. 687 cents/lb.
Worldwide Market Conditions: From 2010-2011, the world experienced a kind of “triple whammy” that impacted consumer confidence and market conditions worldwide. The U.S. debt crisis followed by the European debt crises and the tightening of credit facilities in China as they looked to slow their rate of growth to avoid inflation, all led to a slowdown in retail textile purchases for not only wool, but all fibers. This combination of factors has had an especially strong impact in China that has seen both its clothing exports drop (20 percent for the first eight months of 2012 according to Landmark) and its domestic market contract. The result has been a significant reduction in raw fiber purchases by China. As China buys approximately 61 percent of the world’s raw and semi-processed wool exports, (including up to 63 percent of U.S. wool exports), this has been the fundamental cause of the recent large drop in wool prices worldwide.
Industry Confidence: One of the key micro-level factors in a commodity market is the confidence level of the industry participants. This is even more so when the number of key players really is quite limited. If there is a pervading feeling in the market that the downward direction of the market will continue, no wool buyer or user will buy anything beyond what is absolutely necessary to feed his needs in the short term. It was very clear at the Nanjing Wool Market Conference in Sanya, China in early September that this was exactly the situation for both the Chinese manufacturers and their suppliers. While Chinese early stage processors’ stocks were not high, stocks of yarn and fabric were said to be enough to sustain the market for at least a short while.