Mecardo Analysis - Fibre prices heading lower
- By: "Farm Tender" News
- Ag Tech News
- Jan 15, 2019
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By Andrew Woods | Source: Emerging Textiles, Cotlook, AWEX, RBA.
Wool is part of a group of apparel fibres, some of which are much larger, such as polyester and cotton, and some much smaller, such as alpaca. Issues specific to wool will help to push wool prices around but ultimately wool prices will follow the general trend of the apparel markets. With this in mind, this article looks at what is happening to some of the larger apparel fibre prices.
Various fibres trade at different prices levels, as seen in the greater wool market where carpet, downs, crossbred and Merino price levels are quite different. To enable easier comparisons, the prices used in this article have been converted to rolling 5-year percentile ranks. The ranks tell us if a fibre price is expensive or cheap in relation to prices of the preceding 5 years.
Figure 1 shows the rolling percentile rank for acrylic, polyester staple and cotton prices from the mid-1990s through to last December. The original price data used is in US dollar terms. Acrylic and polyester staple prices are very highly correlated, while cotton occasionally moves independently of the manmade fibres. The most recent cyclical low was in 2015 when prices for the major apparel fibres shown in Figure 1 all worked their way through bottom decile levels. In 2016, the price ranks started to cycle upwards, reaching peak levels in the first half of 2018 before turning downwards. They have all fallen to around median price ranks.
In Figure 2 the acrylic price series has been replaced by an average Merino micron price series. This enables the rolling price rank for average Merino micron to be compared with the ranks for polyester staple and cotton. The Merino price rank (in US dollar terms) also reached a cyclical low in 2015 before trending up strongly. In this comparison, the average Merino price has outperformed the comparison fibres handily since 2015. Keep in mind Merino wool has done this partly by having low production, which is not an issue for the other fibres.
The major apparel fibres are pointing to a weaker backdrop for the wool market than has been seen since 2015. This looks like a normal cyclical downturn developing, normal in the sense that prices do not move in a constant direction infinitely but pass through rising and falling cycles.
Key points
* The larger apparel fibre backdrop to the wool market indicates that demand is weakening after passing through a rising cycle from 2016 through to 2018.
* Low supply has helped wool outperform other apparel fibre prices in recent years.
* Current seasonal conditions mean that supply will remain constrained for the next 12 months at least.
What does this mean?
Apparel fibre prices have moved from being supportive of higher or at least firm Merino wool prices to being indicative of lower future prices. The backdrop has turned negative. Low supply will help Merino wool prices to continue to perform relatively well, but wool prices are unlikely to be able to continue rising while the likes of cotton and the key manmade fibre prices are weakening.
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