Mecardo Analysis - Fibre prices trending lower
- By: "Farm Tender" News
- Ag Tech News
- Jun 18, 2019
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By Andrew Woods | Source: AWEX, RBA, Cotlook, Emerging textiles, ICS
This week we look at various fibre prices, rather than price ranks or some other form of transformed price. The background story for fibre prices is that they have been falling recently, with polyester in particular worrying cotton. Read on to see where wool fits in.
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Merino wool prices in US dollar terms peaked in mid-2018. The floating Australian dollar is helping to cushion greasy wool prices in a world of weaker economic growth. Fibre prices are presented in US dollar terms in this article as we are interested in understanding the primary price trends of these fibres.
Figure 1 compares the Cotlook A index and the 19 MPG (eastern) from mid-2005 to this month in US dollar terms. The wool price is shown on the left hand vertical axis and the cotton index on the right hand vertical axis. There is a big variation in the price relativities between the two fibres which is mainly explained by supply (May 2018 article), with the lower merino wool supply corresponding to a significantly higher price ratio to cotton. This is especially evident since 2017. The cotton price peaked recently in mid-2018 and has since fallen by 21%. In comparison, the 19 MPG has fallen by a modest 14% during the same period.
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Figure 2 repeats the exercise with an acrylic staple fibre price series. The fall in prices in 2008-09, followed by the rise through to mid-2011 is very similar for the two fibres. Prices then trended downwards from 2011, though slightly differently with acrylic finding a base a year later than wool before trending up to a peak in 2018. Acrylic prices fell heavily in late 2018 (like the merino carding indicator) before recovering slightly in early 2019. Acrylic remains 19% below its 2018 peak price level.
In Figure 3 the 19 MPG and a polyester staple price series are compared. The correlation between the two series from 2005 to 2015 was strongly positive. Since 2015, greasy wool prices have risen strongly (to match the 2011 peak in US dollar terms – the weaker Australian dollar has inflated our view of wool prices even further) while polyester staple prices had a weak price cycle. Polyester staple prices have collapsed back to the low levels of 2015, down 35% on the 2018 peak price level.
Key points
* Prices for the major apparel fibres peaked in 2018
* Since mid-2018, cotton is down 21%, acrylic down 19% and polyester staple down 35%
* In comparison, the 19MPG (in US dollar terms) is down a modest 14% from its 2018 peak
* The story told by apparel fibre prices is of weak demand
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What does this mean?
Traditionally wool has a closer relationship (albeit still relatively loose) to cotton than polyester staple. However, the low polyester staple prices worry the cotton industry, due to fears of loss of market share which would put downward pressure on cotton prices. Lower cotton, acrylic and polyester staple fibre prices will ultimately pull greasy wool prices either by competitive pricing or because they reflect weaker demand for apparel fibres overall, which also effects greasy wool prices. In reality, the effect on wool will be a mix of the two factors.
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