FOLLOWING an exodus of Australia’s wool export giants in recent years, the strength of those still standing is powerful.
Poor margins and low demand was the catalyst for international wool export companies to close their Australian trading arm in the past decade.
Queensland Cotton was one of Australia’s leading wool export companies, selling on about 150,000 bales annually. But in 2014, parent company Olam International closed its doors.
The move followed Landmark’s 2013 decision to cease its Dalgety and Viterra wool exporting operations, leaving mainly family owned, self-employed operators to control Australia’s exports.
“The problem with agricultural corporate companies was that it is a cash intensive business,” Techwool export manager Josh Lamb said.
“The major exporters in the industry turn over in excess of $500 million annually with a margin of less than one per cent.
“The risks involved in turning over that amount of money to make one per cent was why corporates weren’t enticed by it.”
However, signs of a renaissance in the European processing sector and a reform of global financing has stabilised the market and reinvigorated wool trade.
There has been a 30pc fall in the number of wool buyers registered with Australian Wool Exchange (AWEX) in the past decade, to just 52 registered in the 2016-17 season.
“We had a few rough years when corporate companies were still involved, with erratic markets and poor payment efficiency out of China,” Mr Lamb said.
He said the tightening of China’s credit availability since 2010 had helped stabilise the market.
“Europe’s payment structure has always been open credit so if we ship today we might not get paid for 180 days,” he said.
“If we ship to China, we can get paid within two weeks.”
However, with the rise of wool prices in the past two years pushing the value of a Merino export fleece container to as high as $300,000, a global “hand to mouth” culture has grown.
“Customers can’t afford to have wool sitting around for months at a time,” Mr Lamb said.
“You are paying more per bale to purchase wool which is putting buyers under pressure with their financier.
“If your line of credit hasn’t increased in several years it is costing you 40pc more per bale to shift similar volumes of wool.”
In the past, China’s processors would store wool for up to five months. Mr Lamb said that now the majority of orders were purchased, shipped and processed within six weeks.
“No one is holding wool anymore because of cost and risk,” he said.
“This is why you are seeing the market where it is. Mills, no matter what country they are in, are buying every week. This is great for the stability of the market.”
Last season, nearly 23 million kilograms of greasy equivalent wool was exported to India, marking Australia’s second largest consumer of raw wool.
Mr Lamb said India was a “static, price sensitive” market which lagged behind China and Europe.
“India has increased its capacity in the last four years to a point it can’t lift volumes anymore,” he said.
“It is a very healthy market that is primarily domestic, but they are looking at trying to open up the export market for tops and yarns.”
There was evidence of a resurgence in Europe’s processing industry, with Italy and Czech Republic importing a combined 29.5m kg gsy wool last season.
China remains the wool buying powerhouse, adsorbing 258m kg gsy wool in 2016-17.
“Europe is making a recovery with the rising labour costs in China which have risen consistently in the last four years,” he said.
“This is healthy going forward because it is creating competition.”
The buoyed market and strength of demand has highlighted dwindling supply levels. In the past decade, AWEX reported wool sold at auction has fallen by 25pc, from 2.3m to 1.7m bales.
This has led to a rise in the number of wool exporters establishing direct contracts and a brokerage arm.
“The two biggest risks to the industry is a financial crisis in China and wool supply if it goes back any further,” Mr Lamb said.
“With no more wool being produced, exporters are trying to build relationships with growers across the country to mitigate the risk of poor supply.
“Everyone is trying to shore up their supply.”
He said another looming challenge was the low number of youth in the export industry.
“If this is not dealt with soon, we are in for a few problems,” he said.
“A lot of buyers are between 50 and 65 now - in the next 10 years those guys will be gone. We need to get some youth on the floor.”
- Next week: Marketing wool’s future