Brexit Impact on Wool Market

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Brexit Impact on Wool Market 

The UK's vote to leave the EU has sent shock waves around the world.  As the fall-out continues, we share the views of Chris Wilcox, Executive Director of the National Countril of Wool Selling Brokers of Australia, on the potental effect of the vote on the global wool market, starting with Australia.



Short term volatility from financial & currency markets

Short term impact is likely to come from the uncertainty and volatility that the decision creates in financial and currency markets.With very little of Australia's wool exported directly to the UK, it is little surprise that the Australian wool market showed no signs last week of being affected. Just over a week after the shock result, currency markets seem to have settled to an extent (with the Pound Sterling at long-term lows against the US$) and share markets recovering some of the initial losses.

The wool market appears to be unaffected at this stage. It is also interesting to note that cotton prices have continued their recent upward rise in spite of the UK vote, and other commodity prices have rebounded. For Australian wool, the United Kingdom accounted for a mere 0.4% of Australia’s wool exports in the 11 months of the 2015/16 season to May. The total was 1.14 mkg greasy worth $9.1 million. So, in the short term I doubt that there will be much if any discernible impact.

Medium term outlook more significant

The medium term impact may be more significant and potentially negative. These effects will arise if the UK’s economic growth drops as a result of the decision and also if it causes economic growth in other European Union countries falls, notably Germany, Italy and France. 

The UK is the world’s seventh largest consumer of wool clothing at retail, while Germany, Italy and France are the fourth, sixth and eigth largest consumers of wool clothing. Collectively these four European countries account for around a quarter of world consumption of wool clothing. A pull back in economic growth in these countries could see clothing retail sales stagnate, affecting demand for wool clothing. This will need to be monitored over the next six to 12 months.

 - Chris Wilcox, NCWSBA, Excertped with permission from the NCWSBA newsletter of 1 July 2016.


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