Wool Market's Price Recovery Masks Underlying Supply Issues
The Australian wool market has experienced a significant price recovery over the past quarter, but it's essential to look beyond the numbers. The Eastern Market Indicator (EMI) reached its highest level since May 2019, closing at 1989c/kg clean in mid-June before easing to finish the season at 1943c/kg clean.
This rally is not solely driven by a surge in demand from global buyers. Instead, it's largely attributed to a shrinking supply base, resulting from lower wool production, reduced sheep numbers, and tighter auction offerings. The data on wool bales offered shows a clear downtrend in available wool over recent years.
Better-style fine and medium Merino wool has attracted strong buyer competition, with the 28, 30, and 32-micron categories recording some of the strongest percentage gains across the season. However, buyers were selective, penalizing poorer-style, lower-specification, mixed, or less well-prepared lots.
The market's improvement is not without its challenges. The rally may mask demand weakness, and currency fluctuations can impact price gains in US dollar terms. Furthermore, traditional suiting demand has declined, and synthetics remain dominant in many categories.