South African wool market overview
The past season has been one of the best seasons for the South African wool industry in decades. The Cape Wools Merino indicator closed at R97.29c kg (clean wool) – its highest level since the late 1980s.
The season open at a slightly lower level than the previous season's closing level, but slowly gained in strength. By mid season the indicator was 22% higher than at opening. Prices thereafter increased at a rapid speed and by the end of the season the indicator was up 68% on the opening level. This is encouraging when the relative strength of the rand in this period is taken into account.
Some wool-growing areas experienced drought conditions. These include the extreme southern parts of the interior. However, parts of the Western Cape, the northern and central parts of the country have since December 2010 been experiencing rainfalls that were well above seasonal averages.
As a result, growing conditions are currently better than they have been for a number of years.
The overall quality of the bulk of wool deliveries has been good, with improved yields. Marginally higher VM levels have been seen due to the good growing conditions in large tracts of the wool producing areas across the country.
The total offering at auction was about 4% down on the previous season and production for 2010/11 is estimated at 46.4 mkg. It is possible that the drought conditions in certain areas played a part in the lower deliveries.
No stock is being carried over to next season as 99% of the wool offered at auction has been sold.
The current micron profile of the South African clip remains relatively stable, with 98% of the total production (all qualities) testing below 24,5µ. An ongoing general trend of breeding progressively finer has resulted in around 8% now testing below 18,5µ, compared with 7% in 2009/10.
The value of total wool exports for the 2010 calendar year was R1,511-billion, comprising largely unprocessed (greasy) wool (79,5% on value). On a weight basis greasy wool shipments decreased by 10.4% compared to 2009.
Export of processed fibre (scoured, carbonized, top and noil) for 2010 decreased by a further 1.4 mkg to only 5,0mkg, reflecting the continuing pressure on this sector of the trade.
Analysis of major export destinations for 2010 compared to 2009 showed an interesting shift, with European destinations increasing their relative share significantly, particularly in comparison with China and India.
The 2010 figures show the Czech Republic, Italy and Germany taking 39.6% of total value, compared with only 24% in 2009. Accordingly, China and India's combined market share dropped to 53.1% from 67.9% in 2009, indicating the more aggressive marketing strategies by buyers and exporters to diversify markets to better spread their risk.
However, India and China, in particular, remain key markets and considerable work is being done by exporters to maintain their service levels and to exploit market opportunities in these markets.
In dollar terms, the market's performance was even more impressive, with the indicator up 82% by season end.