CCWG Wool Market and Business Update – Fall 2018
2017/18 Wool Market Update
In the last 12 months fine wools from all origins have achieved unprecedented record prices although at the time of this writing prices have pulled back for most microns in the last couple of weeks. Unfortunately the crossbred and broader wools which are much more plentiful in supply have been left behind for the most part and have only recorded marginal increases compared to the previous year.
The growth in fine wool prices can be attributed to two main factors. There is major concern regarding future available supply due mainly to ongoing Australian drought in most of the major wool producing states. This has resulted in decreased production ie lower fleece weights due to feed shortages and reduced sheep numbers. For the 2018/19 season it does not look any better with the current forecast of a 5.7% reduction in the Australian wool clip.
As always, China is playing a major role in influencing the market due to the significant growth of their middle class and upper income earners. Despite rising prices, consumer demand for wool apparel has continued to grow. It was only ten years ago when China was mainly a low cost manufacturing and re-exporting destination for most of the wool exported to China. Today more than half of China wool imports are manufactured into wool products that stay in China and are purchased by Chinese consumers. Upwards of 70% of global wool production finds its way into this market. These are the main reasons for the current strong performance of fine wools. Most leading Chinese textile companies are reporting an increase in domestic sales but a decrease in exports. This underlines the huge growth potential for domestic sales within China as incomes continue to rise.
In terms of sustainability the key message to encourage consumers to choose wool continues to be that we have a natural fiber, renewable and biodegradable resource.
In addition to challenging global climatic conditions the current USA / China trade conflict cannot be underestimated. This escalating trade war remains a key risk to global economic activity and to global textile markets because of the uncertainty it is creating. It has the potential to completely disrupt the supply chain and to lower consumer confidence which up to this point in time has been very high in most of the major wool consuming countries. The present situation is that American raw wool, hides etc are now subject to a Chinese duty of 25%. China accounts for 53% of all USA imports of wool clothing.
Although we have developed markets for Canadian wool in six countries, China will be our major export destination in 2018 for all wool types. It does not appear that the new USMCA agreement will have any impact on Canadian
wool exports to USA, greasy wool is still rated duty free the same as the previous NAFTA agreement. Our sales to USA will be lower this year because of the USA / China trade war, American mills have ample supply of wool that would otherwise be exported under normal wool trading conditions.
Our wool volume dropped approximately 4.3% during the 2017/18 wool marketing year but we are encouraged by recent Statistics Canada figures that indicate our sheep and lamb numbers have increased by 1.6% in 2018 compared to 2017, the first increase in 7 years. However, the drought conditions experienced this year in several provinces has resulted in high feed prices that will likely result in some flock reductions or dispersals.
The tough trading conditions for the broader wools in 2017/18 resulted in lower sales of almost 14.5% for Canadian wool compared to the previous fiscal year. Conditions are somewhat improved during the current wool marketing season. We have found much better selling opportunities compared to a year ago to our regular network of buyers and also some newly established customers.
The retail business of CCWG achieved better than projected results for the fiscal year ending February 28, 2018 and continues to grow. Profitability was up at all locations with overall sales increasing 9.2% In terms of revenue ratio it is now almost 25% (wool) and 75% (retail).
2018 marks our 100th year in business which is a significant achievement. Sincere appreciation is extended to all staff and directors for your efforts in helping CCWG reach this major milestone. You are the company’s most valuable assets. Of course we must recognize the support we receive from our loyal customers who are the reason we are still operating and growing the business today. We are fully committed to building relationships with our customers based on the right product at the right price and delivered with exceptional customer service.
Best wishes to all for continued success.