National wool offering dwindles to 19,000 bales

National wool offering dwindles to 19,000 bales


Sheep
Phillip Mann, White Hills, Tasmania and Damien Whiteley, Elders.

Phillip Mann, White Hills, Tasmania and Damien Whiteley, Elders.

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The Australian wool market continued to head south last week in what was a small east coast only offering, with no sale being held in the west.

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The Australian wool market continued to head south last week in what was a small east coast only offering, with no sale being held in the west.

Only 19,000 bales were offered to the trade and as is often the case when the offering is significantly reduced many buyers chose not to compete in such a small market.

Whether this is strategic or just a psychological reaction to a small offering the outcome is always negative.

Not many expected such a large price drop, however, 50 cents was wiped off most Merino fleece types and 20 from the crossbred values.

The lacklustre trading conditions at present, as well as tight credit conditions along the chain, encourage buyers who don't have an order to sit back and watch.

In more plentiful conditions buyers would "have a go" and put together a container or two to make something happen. But, in the current economic climate and the fact that we are closing in on the financial year end, that adventurous spirit seems to have been extinguished.

Despite some traders having put the "cue in the rack" the larger processors still have machines to fill, a recess looming and their stocks of Cape wool still stuck in a bureaucratic bungle, so they remained relatively active.

Processors are acutely aware of the limited opportunities to buy good quality wools, and they are restricted to the Australian market at present with the Cape already in recess and shearing yet to commence in Argentina.

Chinese domestic wools will be starting to be collected and making their journey from the far-flung provinces of Inner Mongolia and Xinjiang. However, the preparation of these wools normally means they are unsuitable for export quality orders and can only be used for domestic purposes.

Similarly, the Russian woolclip is being shorn now and offers of greasy and scoured wool are being thrown about. Unless traders have a trustworthy connection "in country" to supervise the preparation at the time of shearing there is a large unknown factor when purchasing greasy wool from the "other" sources which can make top making a bit of a lottery and so are avoided by most.

Technically China is unable to import greasy wool from Russia due to quarantine concerns, but the alternative of importing scoured wool adds a further layer of complexity and mistrust about what is in the actual delivery.

So, for those mills servicing the high-end Chinese domestic market, or the European, Japanese or any other high-quality spinner around the world, Australia remains the only viable source of supply at present.

With only three weeks remaining until the winter recess most will have to step up their activity next week and beyond to ensure machines keep turning.

On the charts, most of the Merino indicators in US dollar terms have "fallen out of bed" and are now trading below the trend line established back in late 2015. There is some conjecture whether Merino wool should be viewed in US dollars - the main currency it is actually traded in around the world, or in Australian dollars in which it is actually purchased.

In Australian dollar terms, the charts look much more promising with the even longer trend from 2014 still intact - thanks largely to a lower currency. In either currency, and one cannot really expect that the Aussie will appreciate against the US dollar anytime soon, the market is looking for support.

One such factor to providing support will be the simple need for mill fodder in the coming three weeks. Another factor may be the emergence of new uniform orders in the Chinese market or other stimulus measures released by Beijing. By far the most important factor, but still very much in the unknown basket, is the outcome of the meeting between President Trump and President Xi at the G20 meeting at the end of the month.

Given that everyone has been hoping for six months now expectations are probably a little more tempered than previously. There is no doubt that the issue is having a negative effect across the entire world economy, and it would be appreciated if these two statesmen could actually just "get it sorted".

Back in the "real world" of the wool industry life continues despite the background noise of world economics.

The previous issue of price resistance has now dissipated with the market decreasing by 350 cents from its high last August when the Chinese fake fur boom created record price levels. Fake fur may yet again become the hot fashion item in the Chinese autumn, however, this season's fabric is made almost entirely from crossbred wools, so such a boom is unlikely to have much effect on the Merino segment.

The weaving segment, producing suiting fabric is heaving a sigh of relief that this annus horribilis is over and looking forward to a much better year ahead. The price resistance issue hit this sector much harder and although some took the path of blending with plastic, fabric order volumes were down across the board by as much as 20 per cent.

There are good news stories in the woven sector, however, with some new niche products hitting the market such as the garments which will be worn by the Italian sailing crew defending the America's Cup next year as a result of cooperation between Prada, The Woolmark Company and their partners.

All in all, we should see price support kick in fairly shortly and hopefully a degree of optimism build for the new season.

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