Greasy wool stocks are low and confusion high in China

Greasy wool stocks are running low as confusion rises in China

Wool
NEWS FROM CHINA: Australian Wool Innovation;s trade consultant, Scott Carmody, says stocks of greasy wool in China are running low.

NEWS FROM CHINA: Australian Wool Innovation;s trade consultant, Scott Carmody, says stocks of greasy wool in China are running low.

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China's greasy wool stocks need an immediate top up but the future beyond that is uncertain.

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Greasy wool stocks are running low in China which should be good news for prices in the next few weeks.

Speaking from China after the annual Nanjing Wool Market Conference at the weekend, Australian Wool Innovation's trade consultant, Scott Carmody, said China's greasy wool supply chain was running close to empty.

While this would provide confidence in the wool market in the "very short term", Mr Carmody said the conference hadn't shed much light on the longer term outlook for the Chinese industry.

The conference was held in Qufu, Shandong province, the home of ancient Chinese philosopher and politician, Confucius.

"And they are calling it the conference of confusion. Processors don't know what's going on, buyers don't know what's going on, exporters don't know what's going on," Mr Carmody said.

He said consumer confidence in China, Australia's biggest market for woollen garments, and throughout Europe had been badly dented by trade and economic uncertainty caused by a rash of problems including Brexit, Iran and the US-China trade war.

European wool processors said consumer demand in their part of the world had dropped by upwards of 20 per cent, he said.

The Chinese processing industry was also being hurt by serious over-capacity with many machines now sitting idle. Mr Carmody said the Chinese Government was addressing the issue.

As well, the recent $4 to $5 a kilogram clean drop in the Eastern Market Indicator (EMI) had devalued the inventories of first-stage processors in China by 25-40pc, a big depreciation if prices didn't quickly recover.

Mr Carmody said topmakers usually had two or three months of stock in system and they had probably averaged around 1800c a kg for most of that wool.

There was a lot of pain around and everybody at the conference, including a big contingent from Australia, were looking for answers, he said.

Much would depend on wool retail sales during the northern hemisphere autumn and winter but the first results weren't likely before the end of October.

He said Chinese mill operators were angry about the trade war with the US and were looking for a solution.

Mr Carmody said the talk throughout Chinese manufacturing industry was the need to become "greener".

He believed the push would help wool which was a natural fibre.

Also at the conference was WoolProducers Australia president Ed Storey who said the clear message from China was for growers to expect ongoing volatility in the market.

"We heard a number of speakers talk about some of the macro market trends and while the obvious factor impacting the wool market is the ongoing US-China trade war, there are numerous other issues such as Brexit and a downward economic trend in Europe that are leading to a slowing of the global economy," he said.

"These factors coupled with low supply and lower quality wools being offered due to drought conditions are obviously leading to a loss of market confidence.

"WoolProducers' take home message from these discussions was that the one certainty of the future wool market will be the volatility which is unfortunate for Australian wool growers.

"Consumers are starting to demand traceability and transparency from the production sector which assists in telling the sustainability credentials that the wool industry has," Mr Storey said.

Meanwhile, the wool market stabilised last week after a roller coaster ride in recent weeks.

The benchmark Eastern Market Indicator (EMI) rose seven cents to finish the week on 1542 cents a kilogram clean.

Also pleasing was the increase in the offering to 30,135 bales, up 8296 on the previous week, after the high pass-in rates of the past month.

Almost 32,000 bales is scheduled for this week's sales starting in Sydney, Melbourne and Fremantle on Wednesday, AWEX said.

The feature of last week's sale was a big price correction in Melbourne on the back of a rapid rise the previous week.

The Southern Indicator shed 12c during the week to finish at 1524c while the Northern Indicator rose 36c to 1570c and the Western Indicator added 18c to 1643c.

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