Bloomberg News

Wool Extending Rally to 16-Year High as Global Supplies Shrink

June 16, 2011

June 17 (Bloomberg) -- Wool prices in Australia, the world’s biggest producer and exporter, may extend gains from the highest level in at least 16 years before new supplies later in the year bring down costs, according to Raymond Ltd.

Benchmark prices in Australia have surged 39 percent this year, heading for the best annual gain in nine-years. Prices touched A$14.31 ($15) a kilogram yesterday, the highest since at least July 1995, according to Bloomberg data, as supplies shrank and European buyers restocked. In South Africa, wool is at the highest level in more than a decade.

“Wool prices have been on an exceptional rise,” Aniruddha Deshmukh, president of textiles with Raymond, India’s biggest maker of woolen fabrics, said in e-mailed responses to Bloomberg News. “While it is believed that the prices of wool would continue to move up, we expect that in another two or three months, when the new clip hits the market there may be a price drop, only to firm up later in the year.”

Global wool output has fallen to the lowest level in about 85 years, with Australian production at similar lows, according to the International Wool Textile Organization. Wool is catching up with rallies in other farm commodities from cotton to wheat and corn, as rising raw material costs stoke inflation worldwide.

“Demand and supply are looking strong enough at least to keep these prices going,” Anthony Boatman, risk manager for wool at Landmark, a unit of Calgary-based Agrium Inc., said in an interview from Melbourne yesterday. “Supply is fairly constrained and that’s particularly showing at the moment.”

Wool in Australia climbed to a record A$15.84 in April 1988, Landmark said in February.

Cotton at Record

Cotton prices surged to a record $2.197 a pound in New York on March 7. Wheat is up 47 percent in the past year, while corn has increased 72 percent. Wool’s 39 percent gain this year exceeds that of corn, silver, coffee and gold.

“Initially this rise was attributed to inflation, later it was related to abnormal increase in prices of other fibers led by cotton,” Deshmukh said. “Currently at the end of the season, the short-supply of wool is further increasing its price.”

Global wool output will be 1,098.8 million kilograms clean weight in 2011-2012, little changed from a year earlier, Chris Wilcox, chairman of International Wool Textile Organization’s market intelligence committee said. That’s the lowest in about 85 years, he said in an e-mail. In Australia, production is forecast at 340 million kilograms greasy weight in 2010-2011, the lowest since 1924-25, he said.

Indian Demand

India was the second-biggest buyer of Australian wool in 2009-2010 behind China, according to the Australian Bureau of Agricultural & Resource Economics & Sciences.

Higher wool prices may increase the cost of clothing in India next winter, with wool purchased now to make garments for the next cold season, D.K. Nair, secretary-general of the Confederation of Indian Textiles Industry, said on June 2.

More expensive wool will increase costs for textile and apparel makers and may add to inflationary pressures as consumers face pricier clothes. Central banks from China to India and the European Union have been raising rates to restrain the pace of price gains.

“Economies are slowly getting back on track and demand is increasing for luxury items, which wool is,” said Landmark’s Boatman. “Most retail sectors are fairly cutthroat in the way that they price but if the demand’s there then people will pay the price.”

--Editors: Thomas Kutty Abraham, Jarrett Banks

To contact the reporters on this story: Madelene Pearson in Mumbai at mpearson1@bloomberg.net; Phoebe Sedgman in Wellington at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net;


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