Australia's heavily China-dependent wool industry is cautious - but far from being in a state of nervous anxiety - about the risk of becoming the next surprise target of trade reprisals from Beijing.
As cotton merchants and growers try to make sense of this month's unofficial boycott of the Australian crop, the wool market is running fairly hot again after a surge of recent Chinese buying activity.
On average China buys about 80 per cent of the $3 billion Australian wool clip, but at the moment it is accounting for more than 90pc of export orders as textile mills crank up production to meet rising demand from Chinese consumers and to restock global supply chains.
"Unlike cotton, China doesn't have many alternatives when it comes to sourcing wool for its mills," said national wool brokerage manager with trading and export company Fox and Lillie, Eamon Timms.
"We are quietly hopeful the strength of our trade relationship won't see any market disruption.
"We're in a fairly unique position which is giving the industry some measure of comfort."
Market's hot
In fact this week, despite other key wool buyers such as India and Italy remaining "unusually quiet", bidding competition between Chinese mills saw wool prices jump $1 a kilogram in the first five minutes of trade on Tuesday as the Eastern Market Indicator's rebound continued its 30pc rising trend of the past six weeks.
The eastern market ended the week averaging 1219c/kg clean.
"While there is generally an uneasy feeling about China's attitude to Australia across the agriculture sector, the mood in the wool trade is certainly not as unsettled as it is with cotton guys at the moment," Mr Timms said.
Last week cotton spinning mills in China were verbally advised by the National Development Reform Commission of tariff hikes of up to 40 per cent if processors continued importing Australian cotton.
No reason has been given, but the move coincided with China inexplicably deferring orders for Australian coking coal, too.
Like the wool industry, Australia's cotton exports are heavily skewed to China which traditionally buys about 60pc of the crop.
China generally has a very protective policy around maintaining stability for its textile industries
- Charles Clack, Rabobank
However, unlike our wool sector which is the world's largest producer by value and volume, the local cotton industry grows on average just 8pc, or about 3.5m bales, of the 40m bale annual global crop.
Rabobank research analyst Charles Clack said Australian wool's prominent ingredient status in the Chinese textile industry was fortunate on several fronts.
Precious textile earnings
"China generally has a very protective policy around maintaining stability for its textile industries," he said.
"Those mills are producing a massive amount of natural and synthetic fibre products for export and for the clothing industry within China, which itself is a huge export industry.
"It seems unlikely authorities would risk undermining the wool supply chain, especially right now when global demand has started to return to textile markets."
Mr Clack said COVID-19 crash in clothing and textile demand had recovered back to normal in China and was only 10pc down on last year in Australia.
Textile industry demand was, however, still about 25pc below 2019 figures in pandemic-challenged Europe.
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Managing director with farm market analytical group Mecardo, Robert Herrmann, said reports from China suggested all fibre markets, including synthetics, had surged following the October holiday period, while consumer demand was reflecting China's 2pc-plus economic growth rate this year.
"About half our wool sold to China is consumed by Chinese customers," he said.
Fibre scramble
The past month's general lift in apparel fibre prices had seen Australian wool markets subsequently caught up in the frenzy this week as buyers scrambled for stock.
"There seems to be recognition that stocks have been running down," Mr Herrmann said.
China's wool processing sector is so important to its global trade position they can't afford to suddenly stop buying from Australia
- Robert Herrmann, Mecardo
"As the coronavirus pandemic comes under control we are going to see rising demand for a variety of agricultural products, including food commodities, and buyers don't want to be caught short, especially in Asia.
"I hope this comment doesn't come back to bite me, but I believe China's wool processing sector is so important to its global trade position they can't afford to suddenly stop buying from Australia.
"Wool's not in the same availability category as barley or wine which the Chinese can buy anywhere if they want to make a point."
Australian wool was not just valued because of the volume we grew, but also its consistent supply and quality which provided the basis for processors to blend with the "overwhelming poorer quality fibre" available from most other sources around the globe.
Fox and Lillie's Mr Timms said while retail clothing markets had been sluggish this year, current market signals suggested the early stage pipelines did not have much product left.
"Now that their mills are up and running again, they need product to them working."
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