CHINA is proving to be both the best friend and worst enemy of today’s wool industry says Techwool trading manager Josh Lamb.
A large majority of our wool clip was going to China, Mr Lamb told a forum at Gunning in southern NSW this week.
“That is extremely unhealthy for any sort of market, no matter what commodity.”
Techwool is one of Australia’s largest wool traders and exporters of greasy and scoured wool.
Speaking frankly about what it will take to ensure long-term survival for woolgrowers at an “Insights into sheep and beef markets and modern production systems” forum, Mr Lamb identified three major issues.
“Lack of demand for fine wool is an obvious one, the others are a (lack of) youth in the industry and a credit squeeze with China,” he said.
“Two of these may be unsolvable – the lack of demand for fine wool and the other is attracting young people to the industry.”
Mr Lamb said China’s appetite for wool was crucial for Australian producers and exporters, but the Chinese had never really been educated to buy 18.5-micron wool rather than 21 micron.
“This is what’s holding the fine wool market back,” he said.
“Every other country, such as India or and Europe, has a fine wool (processing) sector which is booming, but they don’t buy enough quantity to satisfy what’s now being grown here.”
While 25 years ago the wool industry was dominated by Japanese and European processing and buying companies, today few of those businesses existed.
As of the end of June, 72pc of the Australian clip was sold to China where a slowing economy was only adding to the downward pressure for wool buyers and processors.
Mr Lamb said a lot of the corporate wool buyers and traders had disappeared from the market due to low returns.
“In the top 20 companies in the industry we have just one-quarter left (who are corporates),” he said.
Family-owned and operated traders had tended to stick with the wool industry.
“If a corporate is going to put up $200 million or $300m a year to trade wool they need to make more than the one per cent return that has been the industry average of the past five or six years,” he said.
“This is not sustainable. It wouldn’t be sustainable for you on the land and it’s certainly not sustainable from a business point of view.
“While corporates bring a lot of funding to the industry, they come and go based on whether or not money is being made.
“Family-owned players tend to stay in it (the industry) for the long-term because they believe in wool as a product.”
The current oversupply of fine wool on the market has been a result of dry seasonal conditions, rather than a traditional style of the lower-micron fibre.
Mr Lamb said having less of this drought produced fine wool in the market was the only solution to the lack of demand.
“It is going to take time, but with any luck I could stand here in 10 years time and report China’s only buying 50pc of our clip which would mean the other 50pc is going somewhere else in the world.”
“China is both our best friend and they are our worst enemy, but it’s something we have to live with.”