DESPITE a backdrop of tumbling global equity markets the wool market in Australia managed a solid performance last week.
AWEX’s Eastern Market Indicator increased to 2023c by a healthy 31c in local currency terms (US20c and Euro8c). The prices in Australian terms were positive on both selling days, but thanks to some fairly erratic currency markets some of the first day’s gains in foreign currency were reduced by the time selling finished on Thursday.
After three weeks of red ink on the AWEX market reports it was pleasing to see a lot more green although a couple of segments still continue to drift downwards.
AWEX’s northern market indicator closed up 20c on 2070c. The 17 micron indicator closed on 2857c, 18 micron 2593c, 19 micron 2381c, 20 micron 2278c, 21 micron 2243c, 28 micron 906c, and 30 micron 711c.
Some of the superfine and ultra-fine Merino fleece lines that are substandard in processing specifications are being heavily discounted by the trade and therefore dragging down the micron price guides for these finer types.
Not only is there an abundance of drought affected superfine wool appearing on the market, at current price levels buyers are simply unwilling or unable to pay $25 to $30/kg for wool that will not give them the performance they need.
There is a big gap in the processing value, and therefore price paid in the market between good quality superfine Merino fleece and drought affected, hunger fine, stretchy fibre.
- Bruce McLeish, Elders
There is a big gap in the processing value, and therefore price paid in the market between good quality superfine Merino fleece and drought affected, hunger fine, stretchy fibre. Unfortunately the trade is seeing quite a bit more of the latter as the season wears on.
China returned from their Golden Week holidays and pushed a bit harder to secure supply of greasy wool. Most early stage processors are running with very low raw material stocks – some even taking the unprecedented step of closing production during the holiday period.
Stopping production at this time of year is virtually without precedent and certainly has not happened in the past couple of years. It is mostly a case of uncertainty about which types to produce at present as mills keenly await new orders.
The international fabric fair in Shanghai two weeks ago was well attended, but customers were still searching for that ‘something special’ item that would help them launch this year’s collection. In the previous three years it has either been double faced fabric or fake fur that has generated the enthusiasm for everyone involved in the Chinese production chain.
Carbonisers and woollen spinners are feeling particularly despondent at the moment with high stocks of last year’s double-sided fabric lying idle in warehouses as retailers look for something new. The repercussions are being felt back in the Australian auction rooms with the carding wools failing to follow the merino fleece in price trend last week.
Locks and crutchings are still bringing high prices, but the trend in price so far this season has all been the wrong way. Some are saying that it is still too early in the knitwear season for demand to be apparent, and the unseasonal demand which saw short wool demand skyrocket in July-September was simply abnormal, and we need to wait until demand for the traditional products comes back in December and January. How these traditional knitwear products will cope with current price levels is a question yet to be answered.
Worsted Merino production, from fleece wools for the traditional woven fabric for uniform and suiting continues very well in Europe, and quite well in China. The uniform business in China continues to provide a core volume of orders for most of the larger mills and export orders, although not booming are plodding along.
With the low stocks at the early processing stage, low supply forecasts for the coming months and only a slight reduction in merino fibre usage via blending with cheaper synthetics virtually no one is of the opinion that merino fleece prices will fall.
However, there is some uncertainty floating around the globe that was not really present last year, and this has people more than a little concerned, and it is making some a bit reluctant to commit to longer term purchases.
Last week’s blip on the stock market screens, led by Wall Street and quickly followed in just about every major bourse on the planet made everyone jittery and comparisons with 2008 where quickly being made. The widely watched CBOE Volatility Index, or Fear Index, had risen earlier in the week to 22.96, its highest level since April. Still a far cry from where it was back in 2008 or 2011, but enough to get people talking.
The US economic recovery continues apace, which many are happy to take credit for, but in seeking to distance himself from the share price correction President Trump thought it prudent to sling a bit of mud at the US Fed Reserve. Independence of the Central Bank is the cornerstone of every major Western economy, and while most would write off these comments as just another ‘Trumpism’ it was enough to make sure that people were unsettled by the end of the week.
While the first couple of years of the Trump Presidency have not been as disastrous as many expected, and there has been more talk about love recently than war, the runs are certainly on the board when it comes to economic recovery – albeit from a very low base.
The very nature of global economics and finance means that the improving US economy and therefore the value of the US dollar will be a challenge for many emerging economies who have their debt leveraged in US dollars. Add in the US-China Trade war and the Brexit negotiations that occasionally push the EU rule bending Italian budget off the front pages, and there is a fair bit going on.
Trying to find clear space to plan a retail campaign and secure raw materials all the way along the supply chain when prices are already at historical highs is a bit challenging. So, to expecting it to take a little longer than usual for decisions to be made this year is probably not unreasonable. With the bulk of Australia’s merino wool in ‘won’t fall in price’ category, and a bit of rain falling around the country things are not looking too bad.