Natural fibres: September quarter 2019
Uncertain textile market to pull fibre prices down
Price forecasts for cotton and wool have been revised down since the Agricultural commodities: June quarter as a result of competition with substitute fibres and elevated uncertainty in textile demand. China–US trade tensions have negatively affected the prices of all textile fibres, driven by new tariffs on China's garment and textile exports. Textiles are primarily traded in US dollars, so devaluation of the yuan against the US dollar is expected to put downward pressure on prices.
The Cotlook 'A' index averaged US84.4 cents per pound in 2018–19. Increased world production is forecast to exceed growth in global consumption of raw cotton in 2019-20. This will increase stocks and put downward pressure on world cotton prices.
The Eastern Market Indicator (EMI) price for wool is a weighted average price across different wool types. In 2018–19 the EMI averaged 1,939 cents per kilogram. In 2019–20 the EMI is forecast to average 1,435 cents per kilogram, mainly due to reduced and uncertain demand in world markets.
Wool prices to fall in 2019–20
Wool auctions throughout August 2019 saw the EMI decline by 22%, bringing it down 35% from record highs seen 12 months prior. Additionally, high pass-in rates came at a time in the season when demand is typically strong following a 4-week hiatus. Micron price premiums for superfine wool have fallen since late 2018. This is due to an increased supply of superfine wool following the prolonged drought in Australia's eastern states. While wool production is down as a result of lower sheep numbers, demand-side factors are driving falling wool prices across the whole micron range.
The China–US trade tensions provide an incentive for Chinese textile manufacturers to delay wool purchases. A prolonged run of historically high prices may encourage textile manufacturers to substitute towards lower-cost fibres. In real terms, the EMI is still above the long term average. However, ongoing trade uncertainty and competition from alternative fibres is expected to force wool closer to parity with other fibres in US dollar terms.
Australian wool production to continue to fall
Australian wool production and exports are estimated to have fallen in 2018–19. Continuing dry seasonal conditions across most wool-growing regions have reduced the number of sheep shorn nationally and the average wool cut per head. In 2019–20 total wool production and the number of sheep shorn are forecast to decrease further due to a sharp decline in the sheep flock. Shorn wool production is forecast to decline by 5% to 286 million kilograms greasy, consistent with the estimates of the Australian Wool Production Forecasting Committee.
Dry conditions increase superfine wool supply
The fall in total wool production in 2018–19 is not expected to continue across all wool types in 2019–20. Of the wool tested in 2018–19, the supply of fine and medium wools (18.6 to 22.5 microns) fell by 24.5% year-on-year. Dry seasonal conditions have pushed the average micron of the Australian wool clip lower. This has resulted in greater supplies of lower-quality superfine wools (18.5 microns or less) coming onto the market. This combination of higher quantity and lower quality has put downward pressure on premiums for finer-grade wool.
World cotton production to exceed consumption
In 2019–20 world cotton production is expected to rise due to increases in planted area in the United States, India and Pakistan. This follows falling production in 2018–19, mainly due to declines in China, India, Pakistan and the United States.
World cotton consumption is expected to fall short of production in 2019–20. China's cotton reserves are expected to reduce to support domestic consumption, but world (excluding China) stocks are expected to grow as a result of increased production and reduced import demand from China for US cotton.
Australian cotton production to fall
Australian cotton production is forecast to fall further in 2019–20 after a significant decline in 2018–19. Irrigated planting prospects are unfavourable in several of the major cotton-growing regions due to low dam storage and soil moisture levels. These factors are expected to limit Australian cotton planting this season.
Dam storage is down on average by 21% in NSW cotton-growing regions and by 25% in Queensland cotton-growing regions. According to the Bureau of Meteorology outlook, spring rainfall is unlikely to be sufficient to recharge dam levels or restore soil moisture. Unless significant rainfall arrives before the planting window, Australian cotton production may barely reach 1.1 million bales—the lowest level in over a decade.
Opportunities and challenges
Uncertainty in global textile trade
The United States is a major importer of textiles and clothing processed in China. The China–US trade tensions have negatively affected world textile fibre prices and trade outcomes. Uncertainty surrounds the implications of any escalation in trade tensions.
New tariffs proposed but not yet implemented by the United States on textile or garment imports from China present a downside risk to demand for Australian natural fibre exports. A decline in Chinese demand for natural fibres has significant implications for the Australian wool industry, which primarily depends on China for exports of unprocessed wool. The depreciation of the Australian dollar is expected to support the competitiveness of Australian natural fibre exports and farmgate returns.
The ongoing China–US tensions provide an opportunity for Australian cotton exports. Tariff retaliation by China is forecast to reduce the volume of cotton imported from the United States. In a season where the United States is on track to produce a large crop, lower export demand is expected to dampen prices for US cotton. Other cotton exporters such as Brazil, India and Australia will have the opportunity to gain a share of the Chinese market at a premium compared with other importing nations that may opportunistically buy lower-priced US cotton.
The effect of trade tensions on Chinese consumers, who represent a substantial and rapidly growing final market for apparel, is unclear. Consumer confidence and to a lesser degree garment sales declined in China between February and August 2018 but have since recovered and strengthened. Given the assumed growth in global incomes and consumption of textiles in the medium term, Chinese demand for textiles and clothing may not weaken if trade tensions continue.
|Natural fibres outlook – September 2019 PDF||5||1.6 MB|
|Forecast data – September 2019 XLSX||12||63 KB|
|Historical data – September 2019 XLSX||41||2.2 MB|
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