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Not-so-golden fleece: Australian wool prices plunge amid Sino-U.S. trade war

Economy Aug 15, 2019 10:56PM ET
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By Jonathan Barrett

SYDNEY (Reuters) - The price of Australian wool favored by Chinese clothing makers has dropped as much as 20% in the last fortnight, sales reports show, with would-be bidders shunning auctions as the Sino-U.S trade war ramped up.

The plunge began immediately after an Aug. 1 announcement from Washington that fresh tariffs on Chinese imports would include clothes and shoes, sapping wool-demand from factories in China that churn out everything from street fashions to sports gear.

Bidding has been particularly weak in Western Australia's Fremantle auction, where more than half of fleeces are failing to find a buyer, the sales reports show. Prices have also been pressured in the country's two other big selling centers of Sydney and Melbourne.

Australia controls 90 percent of global fine-wool exports, where prices are driven by Chinese wool mills and Italian garment makers.

"Everything has fallen," said Andrew Blanch, managing director of Italian textile maker-owned New England Wool, which has an office at the Sydney auction site.

"No-one can get any real direction of where price levels should be to start buying again."

The price drops mark a seismic shift in the sector from 12 months ago, when wool traded above the key level of A$20 ($14) per kg as demand boomed and supplies were constrained by Australia's long-running drought.

But the benchmark price for fine Australian merino wool was at A$16.76/kg on Aug. 9, and is forecast to fall further when it is recalculated later on Friday.

While all wool types have been suffering at auctions, those fleeces in the 19-21 micron range - a unit of measurement popular among mills and manufacturers for producing casual wear - are down by between 16% and 20% in Sydney, Melbourne and Fremantle over a fortnight, auction results show.

Finer wool grades used for high-end suits have fallen slightly less, while cardings, which are often greasy, short locks, have had mixed results.

Wool prices continued to dive even after the U.S. said some of its latest tariffs would be delayed from Sept. 1 to Dec. 15.

Some farmers have been withdrawing their wool bales before auction to avoid the price falls, with turnover dropping by a third since the start of last week.

"Many sellers decided not to offer their wool following yesterday's sharp decline, resulting in 39% of the fleece offering being withdrawn prior to sale," the Australian Wool Exchange said in a report on Thursday's auction at the Fremantle market.

($1 = 1.4756 Australian dollars)

Not-so-golden fleece: Australian wool prices plunge amid Sino-U.S. trade war
 

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