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19. The Markets for Australian Wool Kerry Stott Learning objectives On completion of this topic you should: 1 Have a good understanding of the drivers of demand for Australian wool according to individual micron and product segments. 2 Be able to discuss the regional trends in the demand for Australian from export, intermediate processing to final retail stage Key terms and concepts Derived demand, clothing, developed markets, developing markets, casualisation, substitutes, homogeneity, globalisation, sourcing. Introduction to the topic The demand for Australian wool ultimately derives from the demand for wool clothing at retail (e.g. suits, coats, sweaters), which in turn is a function of prices, consumer incomes, population size, tastes and preferences and promotion. Rich consumers in the developed markets overseas with high discretionary incomes (e.g. the US and EU) are still the major consumers of Australian wool, but consumers in the populous developing world (especially China and India) offer significant potential growth. Wool’s position in the total apparel fibre market and in key product segments (especially womenswear and knitwear) is under significant pressure from casualisation of dress codes and from substitute products on the production (higher prices sheep meat and cattle) and consumption side (lower prices cotton and more luxurious cashmere). Wool is not a homogeneous commodity, and the threats are graver for middle micron wool more so than fine and superfine wool. Globalisation of the wool industry is increasing rapidly. Delivering product to consumers in an extremely competitive market place dictates that retailers and brand owners must source product from low cost manufacturers off shore - more often than not from developing countries, with China increasingly dominant. ©2012 The Australian Wool Education Trust licensee for educational activities University of New England WOOL422/522 Wool Marketing & Clip Preparation________________________19-1

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Page 1: 18€¦  · Web view19-2 WOOL422/522 Wool Marketing & Clip Preparation ©2012 The Australian Wool Education Trust licensee for educational activities University of New England. WOOL422/522

19. The Markets for Australian WoolKerry Stott

Learning objectivesOn completion of this topic you should:

1 Have a good understanding of the drivers of demand for Australian wool according to individual micron and product segments.

2 Be able to discuss the regional trends in the demand for Australian from export, intermediate processing to final retail stage

Key terms and conceptsDerived demand, clothing, developed markets, developing markets, casualisation, substitutes, homogeneity, globalisation, sourcing.

Introduction to the topicThe demand for Australian wool ultimately derives from the demand for wool clothing at retail (e.g. suits, coats, sweaters), which in turn is a function of prices, consumer incomes, population size, tastes and preferences and promotion. Rich consumers in the developed markets overseas with high discretionary incomes (e.g. the US and EU) are still the major consumers of Australian wool, but consumers in the populous developing world (especially China and India) offer significant potential growth.

Wool’s position in the total apparel fibre market and in key product segments (especially womenswear and knitwear) is under significant pressure from casualisation of dress codes and from substitute products on the production (higher prices sheep meat and cattle) and consumption side (lower prices cotton and more luxurious cashmere). Wool is not a homogeneous commodity, and the threats are graver for middle micron wool more so than fine and superfine wool.

Globalisation of the wool industry is increasing rapidly. Delivering product to consumers in an extremely competitive market place dictates that retailers and brand owners must source product from low cost manufacturers off shore - more often than not from developing countries, with China increasingly dominant.

19.1 The markets for Australian woolEnd-uses by fibre diameterAustralian wool has a strong position in the global supply of wool used in apparel. Australia accounts for around 48 per cent of the world production of wool used in apparel and 67 per cent of world merino wool production in 2003. Australia also dominates the international trade in finer merino wool accounting for over 90 per cent of global production of merino wool of 19.5 micron and finer.

Australian wool is a premium priced textile fibre with very unique natural aesthetic characteristics and functional fibre properties such as fineness, softness, elasticity, fluidity, strength and resilience, breathability and thermal insulation. As such, the fibre is used mostly in high retail value textile applications, such as quality woven apparel and knitwear, and in premium bedding and other interior textile products to a much lesser extent. In very broad terms, Woolmark estimates that

©2012 The Australian Wool Education Trust licensee for educational activities University of New England

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Notes – Topic 19 – The Markets for Australian Wool

around 90% of Australian wool is used to make quality apparel textiles and up to 10% is used in upholstery, bedding and the carpet sector. Within the apparel sector, Woolmark estimates that Australian wool use is split between men’s outerwear (37% of the total clip), women’s outerwear (21%), knitwear (28%) and other uses (3-5%), but there are some important differences by micron range.

1 The dominant end use for fine and superfine wools (19.5 micron and finer) is high quality light-weight fabric for tailored menswear and womenswear and as well as high end fine fashion knitwear (18.5-19.5 micron)

2 In the medium-fine merino range of 20-22 micron, the main end-use is fine merino wool knitwear, wool-acrylic blend fine knitwear, and worsted and woollen fabric for performance suiting, jackets and trousers

3 In the medium micron range of 23-25 micron, the main products are wool-acrylic blend knitwear, blended polyester wool fabrics and coats and outerwear, particularly in the women’s sector. Australian wool in this range is blended with other wools and man-made fibre in apparel products for local consumption in China and India

4 In the broader micron range, Australian wool is used in upholstery, hand knitting yarn, coarser knitwear, heavier weight fabrics and carpets and is frequently blended with wools from other countries for relatively price sensitive markets.

Figure 19.1 Usage of Australian Wool by Fibre DiameterSource: Woolmark estimates supplied by K. Stott, The Woolmark Company.

©2012 The Australian Wool Education Trust licensee for educational activities University of New England

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19.5um & finer 20 - 22 um 23 - 25 um26 um & broader Total Wool

0%10%20%30%40%50%60%70%80%90%

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20 30 3316 25

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55 40 21

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19

9819

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15

2

Knitwear Womenswear Menswear Carpets Other (inc non-wovens) HYK

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Notes – Topic 19 – The Markets for Australian Wool

The customers for Australian wool are all located overseas. Virtually all of Australia’s raw wool production is exported for processing and ultimate consumption. China dominates every stage of production and manufacturing, and this dominance is growing rapidly. The major consumers at retail are still in the developed world: the US, EU and Japan, although there is huge potential for increasing consumption in the developing countries, especially China and India, as the huge populations in these countries become more prosperous.

Grow Spin Manufacture Retail0%

10%

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46%

1% 1% 2%

3%12%

43%

4%18%

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30%

7%17%

14%

7%

16%6%

7%

14%

11%3%

11%11%

7%

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6%

5%

3%Others

Indian sub-continent

Americas

CIS/E.Europe/Turkey

Jap/Kor/Tai

W.Europe

China

New Zealand

Australia

Figure 19.2 Australia’s Share of Apparel Wool ProductionSource: Woolmark estimates supplied by K. Stott, The Woolmark Company.

19.2 Australian wool exportsTrends in each micron categoryThe past decade has revealed distinct trends in demand for different categories of wool from Australia. There has been a clear increase in global demand for fine wool as manufacturers and processors have sought more fine wool to satisfy the global consumers’ demand for lightweight garments with next to skin comfort, particularly in women’s wear. At some stage this declining trend in fabric weights of worsted wool fabrics must plateau off as the absolute scientific limits are reached. This is indicated by the slowdown in the decline in fabric weights recently, as seen in the following chart. This decline in fabric weights has brought increased demand for fine and superfine merino (19 micron and finer) wool. Woolmark’s assessment is that current fabric trends appear to be supporting slightly heavier weight fabric constructions to add more texture and surface interest without any loss of handle and fluidity. This will mean that demand for fine and superfine wool will remain firm, but may begin to plateau and demand for slightly broader wool (20-22 micron) may improve a little.

Fine and superfine wool accounted for 38% of the total value of Australian raw wool and top exports in 2004, up from 15% in 1994. Over this period, the value of exports of Australian fine wool of 19.5 micron and finer has increased by 80% $A 972 million. The volume of exports of this wool has also risen sharply, by an even greater 90%. These trends illustrate the steadily rising aggregate demand for fine and superfine wool, even though the prices for this wool were subdued in 2002/03, 2003/04 and the first half of 2004/05 due to the added supplies of this wool and difficult global economic conditions.

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190

200

210

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230

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250

260

1985 1988 1991 1994 1997 2000 2003

Worsted Fabricsgr/m2

320

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440

1985 1988 1991 1994 1997 2000 2003

Woollen Fabricgr/m2

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500

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1,500

2,000

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3,000

1994 1996 1998 2000 2002 2004 2006

A$ million

19um & finer 20-23um 24-27um 27um & broader

0

100

200

300

400

500

600

700

1994 1996 1998 2000 2002 2004 2006

mkg greasyValue Volume

Notes – Topic 19 – The Markets for Australian Wool

Figure 19.3 Trends to Lighter Weight Wool Fabrics Italian Wool Textile SectorSource: Figures prepared by K. Stott, The Woolmark Company from data from SMI

(Semiconductor Manufacturing International).

Figure 19.4 Trends in Wool Exports by Micron Category, AustraliaSource: ABS. Data for calendar years.

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9%

2%

11%

4%7%

7%

11%

39% 1%

6%

6% 4%

55%

3%

37%

1%

Italy N America Japan China India Other Asia Other Europe Other

20061996Volume – 100.8 mkg greasyValue - $ 546.2 million

Volume – 149.2 mkg greasyValue - $903.8 million

Notes – Topic 19 – The Markets for Australian Wool

Over the same period, demand for and export volumes of other microns have fallen. The export volume of 20-23 micron wool has fallen sharply after the sale of the stockpile in 2001, while the export value declined a smaller degree as higher prices for these wools offset some of the decline in volumes. Even so, the value of Australian exports of 20-23 micron wool was 46% lower in 2004 than in 1994, indicating a fall in demand for these wools.

The decline in demand is most significant for 24-27 micron wool, with the export values down by 63% and volumes down 69% in the period 1994-2004. Part of this decline is due to competition from other supplier countries, such as Uruguay, New Zealand and China.

Regional trendsWithin these trends there have been significant changes to the location of processing of Australian wool, as reflected in the export destinations. The major change, and most well known, is the rise in China’s processing of Australian wool.

Since 1993, China’s share of Australia’s exports has risen from 21% to 48% in 2004. This increase in share by China has occurred in all micron ranges, with the exception of 24-27 micron wool where China’s share has actually fallen.

Figure 19.5 Australian Wool Exports by Destination - 19 Micron & Finer WoolSource: Figures prepared by K. Stott, The Woolmark Company from data from ABS.

(Australian Bureau of Statistics).

Note: % figures are volume based. Exports comprise greasy, carbonised, scoured, top, noils and waste. In 2006, “other” includes tops shipped to “unspecified” destinations.

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11%

24%26%

18%

5%

8%

4%

4%

Italy N America Japan China India Other Asia Other Europe Other

Volume – 553.4 mkg greasyValue - $ 2374.6 million

Volume –267.5 mkg greasyValue - $1,272 million

10%

10%4%

10%

35%

5% 2%1%

20061996

4%

36%17%

7%

4%

19%8%

5%

Italy N America Japan China India Other Asia Other Europe Other

20061996Volume – 77.96 mkg greasyValue - $319.5 million

Volume – 29.24 mkg greasyValue - $109.9 million

61%

4%

14% 2%

13%

2% 3%1%

Notes – Topic 19 – The Markets for Australian Wool

Figure 19.6 Australian Wool Exports by Destination – 20 to 23 Micron WoolSource: Figures prepared by K. Stott, The Woolmark Company from data from ABS.

(Australian Bureau of Statistics).

Note: Percentage figures are volume based. Exports comprise greasy, carbonised, scoured, top, noils and waste.

Figure 19.7 Australian Wool Exports by Destination – 24 to 27 Micron WoolSource: Figures prepared by K. Stott, The Woolmark Company from data from ABS.

(Australian Bureau of Statistics).

Note: Percentage figures are volume based. Exports comprise greasy, carbonised, scoured, top, noils and waste.

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1% 5%

19%

25%

3%

40%

6%Italy N America Japan China India Other Asia Other Europe Other

20061996Volume – 29.6 mkg greasyValue - $109.5 million

Volume – 24.4 mkg greasyValue - $77.6 million

6%

7%6% 1%

71%

2% 2%

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Jan-05

Jan-06

Jan-07

mkg clean

Italy

China

Notes – Topic 19 – The Markets for Australian Wool

Figure 19.8 Australian Wool Exports by Destination – 28 Micron & Broader WoolSource: Figures prepared by K. Stott, The Woolmark Company from data from ABS. (Australian Bureau of Statistics).

Note: Percentage figures are volume based. Exports comprise greasy, carbonised, scoured, top, noils and waste.

India has also risen as a processor of Australian wool, with its share rising from 3% to 6%, and much of the gain has come in the 20-23 micron range. Italy’s share has dropped 2 percentage points over the decade to 13% in 2004, but it has lost much share to China in fine and superfine wool and gained share in the processing of 24-27 micron wool.

Figure 19.9 Australian Fine Wool Exports to China & Italy - 19 Micron & FinerSource: Figures prepared by K. Stott, The Woolmark Company from data from ABS.

(Australian Bureau of Statistics).

Note: Data are rolling 12 monthly totals. 2004 data are understated due to the confidentiality restrictions on top export destinations from September 2003.

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Notes – Topic 19 – The Markets for Australian Wool

The main countries to lose share have been Japan, with a fall from 13% in 1994 to just 2% in 2004, and North America (notably the US) which has dwindled as a processor of wool. For Japan, the early stage processing has shifted off-shore to China and to other Asian countries and it is now far more reliant on imports than domestic production to satisfy domestic retail demand. The US now imports around 85% of its retail consumption of wool as finished garments.

Collectively other European countries have lost only a small share of Australia’s exports, although this masks changes within Europe. France, Germany and, in particular, the UK have lost share as they become less important as raw wool processors. Countries of Eastern Europe (Czech Republic, Bulgaria) have gained share at their expense as the location of mills have been shifted.

These export destination trends indicate the significant shift in location of the global early stage processing sector over the past 10 years. However, they do not illustrate the intense competitive pressures currently faced by companies in the global early stage processing industry, the immediate clients for Australian wool producers. This intense pressure has been brought about by the large drop in available wool supplies over the past decade, due to a combination of the fall in Australian and global wool production and the sell-off of the wool stockpile in 2001. As a result, there is excess capacity in early stage processing, particularly in combing, which mostly uses 24.5 micron and finer wool. It is estimated that just 58% of the total global capacity of combing machinery was used in 2003, in spite of recent closures in some of the major wool top producing countries, including Australia, Italy and Taiwan.

China ItalyUruguay

ArgentinaIndia

Czech.

AustraliaS Afric

aTaiwan

0

50

100

150

200

250 2005 2006mkg clean

Figure 19.10 Global Wool Top Production and Capacity UtilisationSource: Woolmark estimates supplied by K. Stott, The Woolmark Company..

Capacity utilisation remains very low in many countries, in particular in China where capacity actually increased in 2003 with the relocation of machinery from Australia and Taiwan. This excess capacity at combing, and in other sectors of early stage processing has put considerable pressure on profit margins in the early stage processing industry. While Australian and global wool production is expected to be flat at low levels over the next 2-3 years, further rationalisation of the early stage processing industry seems inevitable.

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Notes – Topic 19 – The Markets for Australian Wool

19.3 Apparel wool textile manufacturingDeclining volumes throughout the wool pipelineThe volume of global apparel wool demand at spinning and garment manufacture has declined in recent years in line with the fall in the availability of wool, arising from both the fall in annual global apparel wool production and supply from stocks. According to estimates by The Woolmark Company (2004) (based on international trade data), over the 10-year period 1993 to 2003, global apparel wool availability at spinning stage and manufacturing stages of the wool textile pipeline has decreased by 33% to about 685 mkg clean.

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007500

600

700

800

900

1000SpinningManufacturing

mkg clean

Figure 19.11 Global Volume of Demand for Wool* Apparel Wool Textile IndustrySource: Woolmark estimates supplied by K. Stott, The Woolmark Company..

Regional shifts in wool textile processingWool spinning using Australian wool is dominated by two regions – China and Western Europe. According to Woolmark estimates, these two regions accounted for 57% of apparel wool use at spinning stage in 2003 with China alone accounting for 33%. The third largest region for apparel wool spinning is the Commonwealth of Independent States (CIS), Central & Eastern Europe and Turkey though many mills in this region tend to source more wool from other sources such as the CIS as well as from Australia.

There has been significant regional shift in apparel wool spinning since 1993 with wool use declining sharply in Western Europe, North America and Japan, but growing in China and India.

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5%346%47Others

637

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105

40

271

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2007

100%

4%

8%

13%

12%

23%

35%

1998

100%754Total

6%88Jap/Kor/Tai

43%170China

17%261W Europe

6%32Indian-Sub cont.

6%61Americas

16%95CIS/C&E Eur/Turkey

20071998Mkg clean

11%7312%87Others

635

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46

93

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239

101

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8%75Jap/Kor/Tai

38%181China

16%187W Europe

5%26Indian-Sub cont.

7%73Americas

15%122CIS/C&E Eur/Turkey

20071998Mkg clean

Notes – Topic 19 – The Markets for Australian Wool

Figure 19.12 Apparel Wool Use up to Spinning Stage (mkg clean)Source: The Woolmark Company

A similar picture is also evident at the apparel manufacturing stage with China increasing its global leadership in wool garment making.

Figure 19.13 Apparel Wool Use up to Manufacturing Stage (mkg clean)Source: The Woolmark Company

©2012 The Australian Wool Education Trust licensee for educational activities University of New England

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2007

2007

W Eu-rope

ChinaJap/Kor

/Tai

CIS/C&E Eu-

rope/Turkey

Americas

Indian Sub-conti-nent Other

W Eu-rope

China

Jap/Kor/Tai

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rope/Turkey

Amer-icas

Indian Sub-cont

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Notes – Topic 19 – The Markets for Australian Wool

In general, regional shifts in wool textile processing such as weaving and finishing have tended to be at a slower pace than in the clothing sector. Knitting and making up is more of a labour intensive process and has generally moved faster to lower labour cost mills typically located around the rims of major regional retail markets – China for Japan and Korean markets, Eastern Europe and North Africa for Western Europe and Latin America/Caribbean countries for the USA.

Relocation of spinning and weaving has occurred at an increasing pace in the last 5 years. At first, this tended to be mainly for basic yarns and fabrics, such as “greige” textiles, for dyeing and complex finishing in established mills in Western Europe and Japan. However, as clothing factories migrated to developing countries, spinning and weaving including the value added processes of dyeing and finishing has tended to follow for cost and just-in-time reasons.

The increasingly competitive retail environment is resulting in a further relocation of spinning and weaving from traditional manufacturing regions in Western Europe, Japan and Korea in favour of countries such as China, India, Vietnam, Romania and other parts of Eastern Europe. This process is now being actively assisted by Italian and Japanese investment and technical resources, with the major driver being labour costs in each country.

According to Werner International (2004), traditional wool textile manufacturers (Japan, Germany, France and Italy) are amongst the highest labour cost countries of the 52 countries surveyed in the global textile industry. At the other end of the scale, China and India are amongst the lowest labour cost countries.

Figure 19.14 Labour Costs in the Textile Industry 2007 (US$/hour)Source: Werner International

Hourly labour costs are not the only factor in determining a country’s competitive position, with labour productivity, worker skill levels and the quality of output all being key factors. However, many companies have responded to the intense pressure on retail prices for apparel and textiles, and subsequently on processing costs and margins, by seeking to relocate their processing to lower labour cost countries as long as these countries meet their quality standards.

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BangladeshChina (Mainland)

IndiaChina (Coastal)

MalaysiaThailand

TurkeyArgentina

BrazilCzech RepHong Kong

S.KoreaSpain

USAAustralia

ItalyJapan

GermanyBelgium

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Notes – Topic 19 – The Markets for Australian Wool

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Figure 19.15 Clothing Prices under PressureSource: Compiled from Statistisches Bundesamt, Japan Statistics Bureau,

US Department of Labour and UK National Statistics Office.

Japan is one country where its wool textile industry has already undergone major restructuring and rationalisation as a result of this pressure, and is now much smaller than a decade ago with a large increase in import penetration, notably by imports from China. Imports now account for over 60% of Japan’s final consumption of wool apparel, with China the major supplier with a 92% share of Japan wool apparel imports and a 51% share of Japan’s worsted wool fabric imports in 2003. China has now overtaken Italy as Japan’s major supplier of worsted wool fabric. Japan is China’s largest export market for wool apparel

Korea is now beginning to experience a similar trend, with a sharp rise in its imports from China of wool men’s wear, wool women’s wear and worsted wool fabric since 2001.

The US is another market where imports of finished wool garments have achieved a very high penetration level. Just under 90% of the US’s final demand for wool apparel in 2003 was supplied by imports

In Western Europe, the large Italian wool textile sector in particular is under intense market pressure and the industry forecasts at least a 30% reduction in capacity over the next five years mainly in the production of more basic yarns and staple fabrics. The woollen spun sector in particular is experiencing a severe decline in demand while the worsted sector is experiencing a slower rate of attrition.

Despite the influx of investment and technical resources from Italy, Japan and other developed countries, the know-how on wool textile processing and management, as well as efficiency and quality, appears to still be lagging in these growing, emerging countries. This is not surprising as large scale wool processing in a commercial competitive environment in these countries has only emerged in the past ten years, compared with many decades of experience in the established wool textile industries in Italy, Japan, UK, Germany and elsewhere. So, despite the significant advantages offered by low labour costs, wool processing is being hampered in emerging markets by this lack of management know-how.

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apparel non-apparel

Notes – Topic 19 – The Markets for Australian Wool

Some companies are reported by Woolmark to be looking to manage the de-localisation by moving their capacity to neighbouring Eastern European countries while keeping design and added value processing such as dyeing and finishing in Italy. However, it is not yet clear that such strategies have delivered the necessary gains in productivity and margins which is causing some major spinners to look for joint venture opportunities in China. In spite of these changes, Woolmark believes that Italy is likely to remain an important processor of fine and superfine wool, particularly in high end weaving and finishing where design, innovation and creativity remain critical success factors and difficult to replicate in Asia.

19.4 Retail demand for wool textiles and apparelOverviewGlobal retail demand for wool products and for apparel use in particular, has been under intense economic and competitive pressure over the last decade. Wool in total has lost nearly 30% of its world volume consumption over the period 1994-2004. A further decline in volume demand is expected in 2005 given the raw wool production trends.

1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

200

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600

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1,800

mkg clean

Figure 19.16 Trends in Global Wool Demand at RetailSource: Figures prepared by K. Stott, The Woolmark Company.

Note: demand = availability up to retail stage.

Regional retail demand trendsGlobal demand for quality wool apparel has been challenged by low consumer purchasing confidence and fashion interest in some key retail markets such as Western Europe and Japan. The consumer trend favouring cheaper and more casual clothing has also tended to favour textiles made from man-made fibres and cotton in the mass retail sectors.

In contrast to the declines experienced in Western Europe and Japan, where economic conditions have generally been difficult in the past decade, there has been a rising trend in apparel wool consumption in the US up to the economic downturn in 2001 and in China up to 2001 on the back of stronger economic growth in the past decade. There was also a strong recovery in wool consumption in South Korea up to 2002, after the downturn caused by the financial and economic crisis in that country in 1998.

(See appendix 1 for an annual time series by region and the largest 15 retail markets 1993-2003).

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9%588%62Others

682

22

116

55

103

121

207

2007

100%

3%

17%

9%

15%

14%

34%

1998

100%756Total

15%112Jap/Kor/Tai

18%106China

30%259W Europe

3%18Indian-Sub cont.

17%128Americas

8%71CIS/C&E Eur/Turkey

20071998Mkg clean

0.4134,21282.234.0Germany

0.6024,80348.529.1South Korea

0.1312,85868.99.2Turkey

0.2930,11844.913.2Spain

0.6836,26621.114.3Australia

0.1114,705142.115.1Russia

0.022,5631,169.020.5India

0.3533,50961.721.3France

0.4530,36558.926.7Italy

0.7035,63460.842.5UK

0.5633,596127.871.2

Japan

Japan

0.2645,725302.077.4US

0.095,3251,321.1120.5China

Per capita annual wool consumption (kg)

Per capita incomes ($US)Population (million)Apparel wool NDA

(mkg)Country

Notes – Topic 19 – The Markets for Australian Wool

Figure 19.17 Apparel Wool Use up to Retail Stage (mkg clean)Source: Figures prepared by K. Stott, The Woolmark Company.

This growth in the US, China and South Korea were driven in large part by the strong economic conditions experienced in all these countries for much of the past decade.

On a per capita basis, Australia was the highest consumer of apparel wool at retail, with 1.11 kg per person per year consumed, followed by South Korea, the UK, Japan and Italy. At the other end of the scale, the developing countries of Turkey, Russia, China and, in particular, India, have low per capita consumption levels (with India at just 0.01 kg/person per annum). For China, however, an extremely large and growing population counteracts the low per capita consumption figure.

©2012 The Australian Wool Education Trust licensee for educational activities University of New England

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ChinaJap/Kor

/Tai

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Americas

Indian Sub-cont

Other

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Notes – Topic 19 – The Markets for Australian Wool

Figure 19.18 Per Capita Apparel Wool ConsumptionSource: Figures prepared by K. Stott, The Woolmark Company, from data from The

United Nations and The World Bank. Note: Wool consumption is a 3-year average of 2003 to 2005 apparel NDA at retail. Income is GDP per head on a purchasing power parity basis. Income and population data are for 2005.

The US and Germany have, for rich countries, relatively low per capita consumption levels of 0.27 and 0.33 kg/person/year, respectively.

Figure 19.19 Per Capita Apparel Wool Consumption vs IncomesSource: Figures prepared by K. Stott, The Woolmark Company, on behalf of the

Australian Sheep Industry CRC.

Wool consumption is a 3-year average of 2004 to 2007 apparel NDA at retail. Income is GDP per head in 2007 on a purchasing power parity basis.

Product trends at retailChanges in fashion and dress codes have not been favourable to wool over the last decade. The global trend to easy care casual separates and active-wear has tended to favour cotton and man-made fibres on price and performance grounds. General retail price deflation and the boost to raw wool prices in 2002 due to fears of drought-induced shortages in the middle micron segment have exacerbated this trend. Higher wool prices significantly increased the price competitiveness of alternative fibres, especially in relation to cotton, which is cheep due to over supply.

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Notes – Topic 19 – The Markets for Australian Wool

Figure 19.20 Wool Price Relatives – 21 Micron Wool. Data to Jan 2008. Sources: Figures prepared by K. Stott, The Woolmark Company, from data from The Woolmark Company,

Cotton Outlook, PCI Fibres and Raw Materials.

A global analysis of the trend in wool apparel retail consumption by key product sectors, such as suits, knitwear and coats, is extremely difficult to quantify, given the lack of available data on

wool consumption at this product level. A number of key product trends, however, are evident.

In the knitwear sector:

1 The growth of knitted active wear in the form of polyester fleece jackets and cotton/ polyester sweatshirts is occurring at the expense of more traditional jumpers/sweaters.

2 A loss of wool consumption and market share is occurring in the more price sensitive market sectors to cotton in the fully fashioned sector and to cotton and man-made filament yarns in the cut and sew sector.

3 More stable wool knitwear consumption in the middle/upper-middle sectors with the trend to softer and lighter merino wool knitwear of 22 micron and finer and a growing cashmere and cashmere blend presence.

4 Some premium niche opportunities for high performance merino wool and blends in knitted sports and active wear in the form of base layers and hosiery.

Wool consumption in woven menswear is dominated by a very strong market position in suits and a reasonable share of formal jackets and coats. Key trends for wool in this sector are:

1 Wool’s dominant fibre share of men’s suiting has held up well though retail demand for suiting in some markets has been subdued by economic factors.

2 Traditional wool formal jackets and coats have suffered from the move to cheaper casual styles and blousons and outer-jackets in cotton or man-made fibres.

3 Wool occupies only a small share of the high volume trouser market and largely in blends given the pressure on prices and the growth in easy care casual styles.

Wool’s market position in woven women’s wear is weaker than in men’s wear because the sector places less importance on performance and more emphasis on price, fashion, handle, and fabric fluidity. Key trends affecting wool demand in this sector are:

1 Wool’s market share is declining in almost all product sectors as retailers have put more requirement on meeting lower price points, easy care and lighter-weight fabrics.

2 Blended fabrics are increasing with up to three or even more fibres in the blend to provide the optimal handle, performance and price combinations.

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Notes – Topic 19 – The Markets for Australian Wool

1. Strong lift in export demand for Australian fine and superfine merino wool in the past 10 years

a. Corresponding fall in export demand for medium-fine and other wools from Australiab. China and India have increased share as processors of Australian wool, with China

expanding as a processor of fine/superfine wool to first place ahead of Italyc. Japan and North America have lost share as export destinations for Australian woold. Fall in apparel wool availability at spinning and manufacturing mirrors declining raw wool

suppliese. Relocation of wool processing in past ten years sees China and Western Europe

dominating the spinning of Australian wool, but this relocation has been slower than that in the clothing and other textiles sectors

f. Increased competition at retail is bringing further relocation of spinning and weaving from Western Europe, Japan and Korea to China, India and Eastern Europe

g. Labour costs have been the major driver of this shifth. Global wool demand has declined in past 10 years due to tough economic conditions in

key markets and intense fibre competition2. In knitwear, wool consumption has declined due to competition from other fibres in price-

sensitive markets and the growth of knitted active wear (e.g. polyester fleece jackets). Some gains in the middle/upper price sectors for fine/superfine wool. Some early signs of this trend stabilising and a return to “classic” wool knitwear

3. Wool has a dominant share in men’s suiting which has been sustained, but its position in jackets and trousers is stagnant as the market favoured more casual styles and cotton

Wool’s position has weakened in women’s wear due to a greater emphasis on price, fashion, fabric handle, fluidity and colour.

ReferencesAustralian Bureau of Statistics (ABS), 1979-2005, International Merchandise Exports,

Australia, www.abs.gov.au.Cotton Outlook, various issues, Weekly Publication, www.cotlook.com.Japan Statistics Bureau, monthly consumer apparel price inflation statistics, www.stat.go.jp.PCI Fibres and Raw Materials, Fibres Report: A Monthly Review of Synthetics Worldwide,

various issues, Worth Corner, Crawley, West Sussex, England.Statistisches Bundesamt, monthly consumer apparel price inflation statistics, www.destatis.de.The Woolmark Company, 2004, Wool Fact File, Net Domestic Availability of Virgin Wool,

www.woolmark.info. UK National Statistics Office, monthly retail price inflation statistics for men’s and boys/women

and girls outerwear, www.statistics.gov.uk.United Nations, 2005, World Population Prospects: The 2004 Revision Population Database,

www.un.org.US Department of Labour, monthly consumer apparel price inflation statistics, www.dol.gov.Werner International Management Consultants, 2004, Spinning and Weaving Labour Cost

Comparisons, Reston VA and Brussels.World Bank, 2003, World Bank – Quick Reference Tables, PowerPoint GDP.

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Notes – Topic 19 – The Markets for Australian Wool

Glossary of termsApparel Personal outfit, garments, clothing or attire, including headwear

and footwear

Apparel wool Wool suitable for apparel end uses. Wool-type apparel end uses are predominantly men’s and women’s woven outer wear (jackets, coats, suits, skirts, dresses, slacks) and knitwear

Derived demand Demand faced by a firm (e.g. a farm, topmaker) that ultimately comes from the demand for consumer goods

Globalisation Off-shoring to minimise production costs

Homogeneous Raw wool is a heterogeneous product, with many value determining attributes, the most important being fibre diameter (micron)

Net Domestic Availability (NDA)

Wool available for consumption. Calculated wool demand based on domestic wool production and net trade flows in wool textiles and apparel. Can be measured on a global basis at key stages of the wool pipeline: spinning, manufacturing and final retail stage

Non-apparel wool Wool used in upholstery, bedding, carpet. Apparel plus non-apparel wool equals total wool

Purchasing Power Parity (PPP)

The number of currency units required to buy goods compared to what can be bought with one unit of the currency of the base country, usually the US dollar. The PPP can be calculated in terms of the GDP or at other levels of aggregation, such as capital formation or household income

Substitutes Alternative fibres that compete with wool at retail for the consumer dollar. In the apparel market commodity fibres are cotton and man-made fibres

Synthetic fibre A fibre manufactured from a polymer built up from chemical elements or compounds (e.g. acrylic, polyester)

Textiles Fibres, filaments, yarns and fabrics

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