OSAKA -- Wool prices look set to continue their upward spiral, owing to droughts in Australia, strong Chinese demand and fading concerns about Sino-American trade frictions.
New South Wales and Western Australia have suffered from droughts since the second half of last year, as pastures dried up, killing off a food source for sheep. This in turn has led many farmers to slaughter their sheep for meat.
The production of Australian wool in the year through June is expected to drop more than 10% from the previous year, according to nonprofit research concern Australian Wool Innovation.
The number of sheep raised in Australia has dropped to around 70 million, or one-third of its peak in 1990. Many farmers have stopped raising sheep despite growing demand for lamb and shifted to the more profitable production of grain or rearing cows for beef. Even so, Australia still accounts for some 40% of the world's wool exports, according to the Australian government.
Auction prices of wool in the eastern Australian market stood above 20 Australian dollars ($14.13) per kilogram at the end of February, compared with the A$14 to A$16 levels in 2017. After hitting an all-time high of A$20.90 in September last year, they temporarily fell back but have climbed 9% since the end of 2018.
China, the world's biggest wool importer, absorbs about 70% of wool exports from Australia. This demand remains solid due largely to an increase in the sale of high-end suits and knitted products as Chinese consumers' incomes grow.
In addition, a boom in demand for fake fur in China is also boosting wool prices. Wool is increasingly used as a substitute for fur which has fallen out of favor due to animal protection concerns.
Demand for wool in China was expected to weaken in the second half of 2018 due to concerns that the U.S. would impose additional import tariffs on coats and other wool-based products from China. But the outlook for such a scenario is fading on expectations that the U.S. and China is making headway in trade negotiations.
Higher wool prices have pushed Japan's textile industry to raise product prices and use wool alternatives.
Japan Wool Textile, an industry leader known for the "Nikke" brand, will hike wool fabric prices by 10% for uniforms, starting with shipments from April 1. The company said its cost of procuring wool has risen 60% over the past two years.
South Africa is also a wool supplier, but its industry has been hit by an outbreak of disease. "Two to three years will be needed for a recovery in the number of sheep because breeding and rearing of sheep are time-consuming work," said a Nikke procurement official.
Against such a backdrop, many industry officials expect wool prices to stay high for some time.