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Australian wool segment set for strong growth following Chinese demand

Australia's major wool segment is set for strong growth largely due to record high prices and strong demand from increasingly affluent Chinese consumers. Experts for the non-profit Australian Wool Innovation industry group, says demand is now at its peak since the last few decades, with ‘Chinese influence on the market exerting extreme upward pressure on wool prices in Australia.’

In terms of US dollar wool prices are not as high as they were about five years ago, but the weaker Australian dollar against the USD now meant Australian producers were getting paid more in local currency. Chinese wool buyers were paying about US$14 to US$15. dollars a kilo for wool earlier but the price is about US$12.50 now. Prices have rocketed to over 16 Australian dollars a kilo, industry data indicates. Analysts say China has the capacity to push the market even higher as long as demand remains strong. What is seen at the retail levels is that there's been so much wool at retail and many different products that people are seeing the capacity for the market to hold at these levels or even improve.

Australia is the world's leading producer of wool, with its top-grade Merino sheep helping growth of its annual exports of around AU$3 billion dollars (about US$2.28 billion). Chinese demand makes up over 70 per cent of that market, with its businesses manufacturing wool into a wide range of products such as sportswear and shoes and garments.

Around two decades age, almost 100 per cent of wool that the Chinese imported was used to manufacture products which were then re-exported because Chinese consumers found it expensive and could not afford to pay premium price for wool. Today, around 60 per cent of wool is retained in China for local consumption, as their affluence has grown tremendously and this in turn has only helped wool prices to rise. Thus, the Chinese market remains very important for Australian wool as the Chinese see quality in Australian wool.