Wool prices have recovered some lost ground and are expected to remain steady throughout the year, says ASB Bank in its latest commodities report.
Coarse wool prices (35 micron) over the past four weeks have averaged about 5 per cent higher than the corresponding four weeks three months ago, the bank said.
Within the types, lambs' wool has been a standout. Prices reached as high as $6.65/kg in March. April prices remain strong and, at $6.30/kg, are 22 per cent higher than at the same time a year ago. "More broadly, we expect wool prices to track largely sideways over the year," ASB said.
ASB said New Zealand wool supply remained tight as the drought had reduced the national sheep flock and said a similar dynamic was playing out across the Tasman.
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"All up, with tight supply likely offsetting weak demand, we expect the net effect is likely to be neutral for prices," the bank said. "Or, in other words, we expect prices to largely track sideways over the year."
Lambs' wool rose 4.8 per cent to $6.60/kg at last week's South Island auction compared with the previous week's North Island auction - its highest level since it touched a four-year high of $6.65/kg on March 12, according to AgriHQ.
China is the largest buyer of New Zealand wool, accounting for 52 per cent of the $794 million in wool exports last year, according to Statistics NZ data.
"[Lambs' wool] continues to ride high on what is seemingly strong demand from Chinese buyers," said Georgia Twomey, a commodity analyst at Rabobank.
"The market holding up at these levels is very promising, particularly with the New Zealand dollar at its highest level against the US dollar since January and a weighted currency indicator against all major wool trade currencies at its highest level since September 2014."
- Additional reporting, BusinessDesk