Business Standard

Wool industry in the doldrums

Volatility in prices, rising Australian dollar take a toll

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Volatility in the prices of in the global markets is taking a toll on woollen yarn manufacturers. In India, the second-largest importer of wool after China, recent price fluctuations have resulted in stress on the industry. In the past four weeks, the price of Merino wool (20-21 microns) slipped from A$1,250 (Rs 71,250) a kg to A$1,175 (Rs 66,975) a kg CIF (cost, insurance and freight) value. The strengthening of the Australian dollar has added to the importers’ concerns.

S K Patodia, head (wool business), Aditya Birla Group, said, “This is a tumultuous time for the industry. The demand for wool in international markets is regulated by the behaviour of Chinese buyers, as China imports about 80 per cent of the wool. Due to the sluggish demand from China, the price of Merino wool is on the slide — there is a drop of 25-30 per cent. When sentiment is low, this has a multiplier effect. Buyers defer their purchases, anticipating a further fall in prices. The stocks purchased at higher costs exert pressure on buyers..” Woollen yarn mills were running at capacities of only 60-70 per cent, he added.

Of the overall wool exports from India, garments account for half, while the remaining comprises wool top (a semi-processed product from raw wool), yarn and fibre.
 

Taking a blow
  • Rs 66,975 
    Price of Merino wool (20-21 microns) a kg CIF value
  • Rs 71,250 
    Price of Merino wool (20-21 microns) a kg CIF value a month earlier
  • Rs 57 
    Value of the Australian dollar in November
  • Rs 55.70 
    Value of the Australian dollar in October
  • 60-70% 
    Capacities at which woollen yarn mills are being run

The slowdown in developed countries has also hit Indian wool manufacturers. The UK and Italy are major importers from India, and a revival in the economies of these countries is vital for Indian wool companies. Varinder Sharma, president (commercial) of Oswal Woollen Mills (makers of the Monte Carlo and Canterbury brands), said fluctuating rupee and demand uncertainty due to low purchases by China were the primary factors behind the current scenario. In October, the Australian dollar stood at Rs 55.70; in November, it stood at Rs 57. Under such circumstances, even hedging does not save the company from losses, he said.

While China has curtailed its demand for wool, Australian sheep owners are hesitant to sell at the current prices and are, therefore, holding back stocks.

Last year, the price of greasy wool was higher in the global markets, owing to stable demand. However, the benefit of a slight fall in price has been eroded by the rising Australian dollar, Sharma said. He added though, the festive season helped revive sentiment, the rising cost of inputs, power rates and wages, undermined the breakeven point.

Changing income patterns and rising disposable incomes of the urban middle class offer alternatives to the sagging demand in foreign markets. But the volatility in the price of greasy wool, a major raw material, has put pressure on companies. To cut costs, some unbranded players may opt for man-made fibres like acrylic and polyester blend. Branded entities, however, do not substitute products, it is learnt.

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