IN a very interesting week the Australian wool market initially surged, then corrected as traders sat back to reflect on where the market was going.
A large offering in Melbourne necessitated a three day sale, and so proceedings opened up on Tuesday with that centre selling in isolation, and following the news that the South African auction had been cancelled due to the foot and mouth disease outbreak and subsequent temporary ban on imports by China.
There had also been considerable business booked in China over the weekend as mills returned from New Year holidays, and so a stronger market was widely anticipated. The wool market has long been renowned for its volatility, and we certainly saw an expression of that with an initial jump in the first hour of selling of almost a dollar.
The dominance of the largest Chinese indent operator was significant, leaving many other players on the sidelines watching and waiting to see how far things would go.
The second day of selling for the week brought Sydney and Fremantle into the game with both centres quickly catching up to Melbourne’s pricing. Thursday saw a bit of a reality check come into play, with the market easing from the previous frenetic pace, and buyers once again becoming more selective about their purchasing.
Overall it was a week that generated a few new price records for individual micron categories and pushed AWEX's Eastern Market Indicator back above the magical $20 mark. In local currency terms the EMI finished at 2027c after gaining 59c. In US dollar terms the jump was an even half dollar and the European customers also saw a 3 per cent increase or Euro37c.
AWEX's Northern Market Indicator closed up 63c on 2074c. The 17 micron indicator closed on 2620c, 18 micron 2533c, 19 micron 2422c, 20 micron 2390c, 21 micron 2368c, and 28 micron 1153c.
Most price pressure centred on the medium Merino types, where the South African shortfall was going to be most evident. However superfine Merino categories generally rose by 30c as well.
Overall it was a week that generated a few new price records for individual micron categories and pushed AWEX's Eastern Market Indicator back above the magical $20 mark.
- Bruce McLeish, Elders
Crossbred wools continued to have a lot of support with some new orders in the market at the finer end, and mills pushing ever coarser in a search for cheap mill fodder so that nearly all categories rose by 50c. Cardings followed along rather meekly, but still finished the week 30c dearer.
Obviously the FMD issue in South Africa was the talking point over the weekend and early into the auction week, but there is now a degree of confusion about whether a ban is actually in place or not, and perhaps, hopefully, the trade can resume shortly.
While growers selling in Australia this week reaped the benefits in prices received at auction, there was a slightly bitter taste in everyone’s mouth when thinking about how it came about. Also taking the South African supply out of the equation puts unwanted extra pressure on an already tight supply chain.
Broadly speaking South Africa contributes around 10pc of the Merino wool, but it is much more concentrated that the spread of micron in Australia. So, at this time of the season it is contributing around 50pc of the 19.5-22 micron Merino fleece shorter than 75mm, and it the dominant supplier of carding wools in this micron range.
Given Australia’s seasonal conditions the 19.5-22-micron supply has been incredibly tight for the past year, and so this has punched a big hole in both worsted and knitwear supplies, which will hopefully be rectified soon.
It was not only the FMD issue that affected the market this week, as there was also a surge in business booked from mills further up the pipeline as they returned from Chinese holidays and others in Europe starting to cover requirements for the remainder of this processing season.
Chinese demand still tends to be very short term focused, but European mills are certainly more forward thinking in their approach, as is often the case. The Chinese textile industry continues to grapple with the current economic situation in China and will no doubt be very reactive to short term supply and demand signals.
The rush by Australian growers to send wool into store and quickly roster for sale has produced a considerable increase in volume for next week’s auction with just under 50,000 bales scheduled to go under the hammer. This coupled with a double-up in South Africa means that we could have a short-term oversupply, so it would be surprising if the market did not ease back from last week’s record prices a little.
The situation for the longer term, however, remains one of tight supply into the back half of the season, so the more astute processors will be front and centre next week. Talks in Beijing, and then Washington are progressing to secure a deal on the trade issue, with proclamations of positive outcomes in slightly differing language from the two sides.
President Trump tweeted that “Big progress being made on soooo many different fronts”, while Beijing claimed a “consensus in principle.” The fact that Vice Premier Liu is now holding talks in Washington, in what is now the third round of talks in a month clearly shows the willingness of both sides to find a resolution for this impasse by the March 1 deadline, or close to it.
Pretty much every economy in the world has seen some effect of the trade spat with even recent German industrial data looking weak as a result of a slowing Chinese economy. So, a positive outcome in the next couple of weeks will be welcomed across the globe, and will definitely add another leg to an already stellar wool market.
- Bruce McLeish is Elders northern wool manager.
