Wool Prices Explained

Wool prices showed positive sentiments as currency movement across global markets slightly recovered. This translated to robust buying activity, particularly in finer fleece types of wool. The commodity’s marketability leans on the increasing purchases from Europe and India. Europe has been consistent in its inquiries about the finer micron wool that demands a price premium.

Despite the not-so-promising Chinese economic condition, the country remains the top wool buyer in Australia. Also, trading relations between the two countries are improving in a broader perspective.

Why are wool prices fluctuating?

1. Consumer Spending

The commodity’s downhill value became evident across trading after the pandemic lockdown and global inflation. According to a financial study by CreditDonkey, an average person spends about $161 per month on clothes, and women spend nearly 76% more than men do yearly.

Consumer spending on apparel significantly declines due to the effects of inflation as a majority of customers prefer to spend money on important necessities such as food and services. This led to a decline in fashion spending by 40%, according to the PwC Global Consumer Insights Pulse Survey. Thus, the even out of consumer’s spending habits influences the decreasing wool prices.

2. Smart Casual vs Formal

Workplace trends have a huge impact on wool prices. Generally, office clothing etiquette requires employees to dress formally. These include high-end suits such as coats, trousers, and cardigans. However, the casualization trend among offices means people have the freedom to ditch the traditional clothing style or mix and match.

This office fashion trend contributes to wool demand as the majority of business suits are made from worsted wool. Additionally, new work practices such as hybrid or work-from-home give people the leverage to dress casually. Overall, the changes in workplace trends play a big role in the demand and prices of wool.

3. Consumer Preferences

The increasing demand for thinner apparel fabrics from customers will certainly change wool prices in the future. While wool producers keep up with this demand by spinning finer wool to produce more breathable and lightweight garments, other natural fabrics give similar quality too. These are cotton and silk.

Silk is more expensive than wool but can’t keep the body warm. Conversely, cotton is cheaper but can’t insulate the body from cold temperatures. Overall, these fabrics vary in price and capacity but they can compete with wool in the lightweight segment of the market.

4. Single Market

China (the second-largest wool producer) is the top importer of wool, accounting for almost 85.4% of the total global import. Additionally, the country is Australia’s number one wool market. The country’s consumption of wool stems from its limited farmland, less growth of its local production, and the growing apparel and footwear industry.

However, this business might slow or become uncertain in the future as the country faces current economic downturns and low consumer spending. Thus, producers need to spread and strengthen their wool potential markets as reliance on a single market can generate wool price fluctuations.

Which variables impact the price of wool?

• Consumer Spending
• Smart Casual vs Formal 
• Consumer Preferences
• Single Market

Where does wool come from?

Wool is one of the oldest natural fibers used by humans, with evidence of its use dating back to the Stone Age. The first wool production likely began with the domestication of sheep, which occurred in the Middle East around 10,000 BCE.

Early humans harvested wool by plucking it from the sheep’s fleece by hand. They spun the wool into yarn and woven it into the fabric using simple tools such as hand spindles and looms.

Over time, humans developed more sophisticated methods of wool production. By the Bronze Age (3000-1200 BCE), sheep shearing became a common practice.

There are seven steps in the production of wool.

1. Shearing – Generally, farmers shear sheep once a year in the spring. However, in some countries, they do it twice or more. 

2. Grading and Sorting – Sorters break up the fleece according to the quality of the product. The best quality wool comes from the head and sides of the animal,  particularly used to make clothing. Lesser quality wool comes from the legs, these are for making rugs.

3. Cleaning and Scouring – The wool taken directly from sheep is called grease wool. It contains contaminants such as sweat and dirt that constitute 30 to 70% of the total fleece weight. Alkaline baths clean the fleece and remove byproducts called lanolin. 

These byproducts are used in the production of many household products.

4. Carding – During this process, the fibers pass through metal machines and straighten into slivers.

5. Spinning – Spinning machines form yarn by spinning the fibers together.

6. Weaving – The weaving process has two types of machines – plain weaves and twills. Plain weaves produce looser fabrics while twills make tightly woven smooth fabrics with elaborate patterns.

7. Finishing – After several finishing processes to ensure that the fibers interlock and do not shrink, some garments are dyed according to customers’ specifications.

What is the future price of wool?

While most factors point to wool’s bearish market, there’s still room for its marketability. Gen Z is another rising market for fashion. This generation serves as the forefront runner in changing traditional retail online. Business Insider cited that Gen Z’s purchasing power is on the rise, with a spending power of $360 billion for disposable income.

Additionally, these factors drive wool prices:

Sustainability – Wool is a sustainable and versatile fiber that is in high demand from a variety of industries including clothing, carpets, and upholstery. Sheep production contributes to low energy emissions. Additionally, the emerging trend of wool recycling opens opportunities to the commodity’s market segment. For instance, Woolmark Company from Australia launches a recycled wool sub-brand for recycled fiber to support circular wool production.

Limited supply – Wool supply is largely dependent on sheep population and unfortunately, its production slowly decreases due to factors such as climate change and diseases.

Thus, wool prices will reach $1,600 per ton in 2030.