Oil price snags wool prices as clothing sales fall

Wool prices, which dropped to a five-year low this month, may fall further as record oil prices sap consumer spending on suits and other woollen apparel.

Benchmark prices in Australia, the world's biggest wool producer and exporter, fell to A$6.76 ($7.44) a kilogram on September 7 - the lowest since March 2000.

Prices are likely to trade below that level for the rest of the year, according to six traders and analysts surveyed by Bloomberg News.

"Wool is looking pretty sick at the moment," said David Thurtell, commodity strategist with the Commonwealth Bank of Australia in Sydney. The fibre is "likely to continue to suffer in the next six months" amid weaker demand in Europe, he said.

Australian wool exports have declined every month this year as oil prices climbed 56 per cent, leaving consumers with less money to spend. Retail sales in Italy, the fourth-biggest woollen apparel market, fell for a 13th month in August, eroding profit at companies such as Benetton.

Chargeurs, the world's biggest wool processor, reported a net loss of 26 million ($45.5 million) on September 8 after writing down the value of its wool assets by about 25 million in July.

Shares of the Paris-based company have fallen 27 per cent this year.

In the US, the third-biggest seller of woollen clothes, retailers posted smaller-than-expected sales gains in July as record heat hurt demand for autumn clothing.

Uncertainty about sales to the US was curbing orders for raw wool, according to Chris Wilcox, chief economist with Woolmark in Melbourne. In May, the US placed caps on shipments of some categories of clothing from China to stem a flood of imports.

- BLOOMBERG