As expected the Australian wool market moved into stabilisation mode last week, with all three selling centres moving up or down to line up in the centre.
Previously Sydney had been left behind with only a one-day sale the previous week, Melbourne had galloped ahead like someone was using the electric prodder, and Fremantle had reigned in significantly to finish 50 cents a kilogram lower than Melbourne down the final straight, leaving vastly different prices across the country for the same wool types.
Calm has now been restored with the Sydney market rising by 50c/kg, Melbourne coming back by 30-40c/kg and Fremantle increasing by 10 to 20 cents a kilogram.
Now only a few pennies separate prices across the nation, which is a sign of a much healthier, stronger market. Selling centre disparities aside, the market closed seven cents higher but thanks to a stronger USD, prices in that currency were nine cents cheaper by the end of the week. All Merino fleece types more or less moved in unison, crossbreds were a bit softer, and cardings gained slightly on average.
Now with some semblance of normality returning to the wool market after the crazy gyrations of the past two months, questions are rightfully being asked about the future direction of the market.
Traders, buyers, processors, economists and industry luminaries all gathered in Qufu, Shandong Province in China over the weekend for the annual Nanjing Wool Market conference.
Lots of war stories were no doubt told about survival or near-death experiences over the past couple of months, and by the end of the evening the trading margins were probably getting stretched.
The volatility of the recent drop and subsequent correction in the wool market has been a challenge for everyone in the industry, although we should also spare a thought for those in the oil industry where they saw a 20 per cent spike in one day following the drone attack on Saudi oil infrastructure.
By the end of the week clam had been restored and it was back to only a 4pc lift overall in prices, so that is unlikely to do much to the price of polyester.
The wool market's weekly jump of around 10pc was pretty stellar, but had happened previously, in fact as recently as August 2018, and plenty of times back in the 90's when a 50-cent jump was a large percentage as the prices were so low. So, the jump we saw was noteworthy, but not mind blowing. What the industry is still trying to work out is the preceding drop in prices.
In historical terms the drop we saw in August (17pc) was also by far from the largest ever, with the end of the reserve price scheme triggering a drop of 35pc in August 91, and the crash after the glorious days of "a pound a pound" registering a 32pc correction.
Both were a long time ago by current industry standards where memories are getting shorter each year. No doubt, this correction and partial recovery will be annotated in the future with some moniker to explain the cause.
Perhaps it will be as simple as 'the Trade War" or more likely it will be described in more detail as "the time when the drought kept prices too high for too long, and eventually the balloon burst".
Most in the industry agree that price resistance has finally caught up with the industry and weakened demand sufficiently for prices to come down. Of the $4 the market has lost since the recess, $2 was necessary and logical, but the extra $2 had been confusing to all.
Does that mean we are now back at a price level and can continue to move ahead?
The optimists would say yes, but there is still a lot of residual damage to be healed and confidence to regain. There are plenty of contracts further down the pipeline which had been booked in April, May and June - and even with the recovery in prices over the past two weeks are still $3 or $4 out of the market.
If both sides work together they can be managed, but if the supplier takes a hard-line approach it will be difficult. Others have been burnt in the spot market covering contracts on the way up, and will become very risk averse in their selling approach in the near future.
While there is a small amount of greasy wool held by growers in Australia, South Africa and shortly Argentina, there is virtually none in China. Some scoured wool awaits payment before further processing, and a bit of wooltop has built up over the past couple of months. Stocks of yarn and fabric are not huge, but given the lead time in production, the price would be high.
Those with garment unsold, purchased at last year's prices would be feeling quite ill at the moment. It is little wonder those higher up the chain are not flooding the early stage processors with orders at present. They either got through the crash by the skin of their teeth, or have been burnt badly, so where possible they just want to sit back and reflect - and see how the retail season for 2019/20 pans out.
So, people in the early stage processing sector, and the exporters and traders who support and feed them gathering together in China on the weekend were struggling to find a shining light. Some sales were made and most people would expect the market to be dearer this week, perhaps by as much as 50c, but following that they are feeling a little gloomy.
Part of this stems from the residual damage of the wild market gyrations over the past two months, and part of it stems from the global economic picture on Twitter. The other significant factor affecting the early stage processing fraternity is simply one of overcapacity in top making.
Before the Australian drought the capacity was excess to requirements, and with another 10-15pc reduction this year expected on top of the 20pc drop in production last season, there is simply not enough wool to keep all the machinery busy.
With demand faltering, especially in the worsted fabric sector, orders of tops are just not flowing freely. Consequently, trading conditions are difficult compared to the previous four years and margins are pretty thin or non-existent. It will a slow recovery, but prices will recover as they always do.
