China Consumer

Wild about wool

Chinese want finer fabric, helping Aussie farms


Shear profit

Samuel Scattergood was 36 when he was transported to Australia for stealing a sheep in his native Leicestershire in 1850. The first task for Western Australia’s ‘Convict Number One’ was to build the prison in Freemantle in which Scattergood and his fellow inmates would be housed. But the other key responsibility for Scattergood and the other felons was to build much-needed infrastructure for the fledgling Swan River colony (modern-day Perth), which had requested the first batch of convicts to mitigate labour shortages.

It had been just over 60 years since the first colonists and convicts had landed at Botany Bay (Sydney) and the country was already establishing a flourishing economy based on Scattergood’s downfall, namely sheep.

By 1850, Australia was producing more wool than the whole of Europe combined and nearly all of it was destined for the UK, then the world’s largest economic power.

The first railways were also starting to be constructed: not to transport people but wool from 16 million Australian sheep (a gigantic increase from the 44 animals that had arrived on the First Fleet in 1788). A century later and their number had multiplied again to 113 million, and the 1950s marked the pricing peak for the Australian sheep industry and its shearers, with wool selling for a “pound a pound” .

With the invention of synthetic materials, the use of wool slumped. The following half-century was characterised by declining prices and the decimation of flocks (an Australian government report says sheep numbers peaked in 1980 at 173 million, but there were just 95 million by 2004).

Since then a new superpower has come to the rescue of the Aussie shearer. From 2001, Chinese imports of Australian wool have increased from roughly a third of the country’s total production to 77.6% last year. Most Aussie wool is exported in raw, greasy form and is processed in China. As a result, total wool exports amounted to A$2.742 billion ($2.1 billion) in 2016, according to Sheep Central, a trade magazine.

It thinks that total wool exports should top A$3 billion in the year to June 30 and wool prices are also touching record highs. In mid-February, the benchmark AWEX EMI (Australia Wool Exchange Eastern Market Indicator) was trading at 1,440 cents clean per kilogramme, the highest level since the exchange began reporting in 1994.

A sheep farmer that WiC met in Western Australia recently said that the upturn is largely a result of Chinese demand. Farms are now making lucrative returns from selling their Merino wool after struggling to make ends meet for decades.

Peter Morgan, director of the Australian Council of Wool Exporters, agrees, telling the Financial Times that Chinese demand is the main reason why the local economy is once more “riding the sheep’s back”.

He also says that changes in demand from Chinese consumers mean that the industry is moving to higher quality grades and that the sector as a whole has reached a “stage where supply and demand look to be in balance”.

Price increases have transformed the industry’s economics. For example, the Australian Wool Producers Forecasting Committee predicts that 70.9 million sheep will be shorn during the 2016/17 season, producing 332 million kilograms of greasy wool. Australia was achieving roughly the same value of wool exports nearly 25 years ago, but it took twice as many sheep to do so.

China is the world’s largest textile producer and its purchases of Australian wool demonstrate another attempt to move up the value chain, away from cheaper synthetics. Industry association Australia Wool Innovation (AWI) says that how and where a fabric is made and what makes it special is becoming important to China’s own consumers too. Australian wool producers are some of the primary beneficiaries because of their focus on Merino wool, which produces softer and more elastic yarn.

As AWI chief executive Stuart McCullough explained to the FT, Merino “is incredibly comfortable to wear, it doesn’t smell when it gets wet, or make you smell like synthetics, and it’s attractive to young people, who like the fact it’s a natural fibre”.

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