Hopes wool market can avoid long term damage from coronavirus

Wool can dodge coronavirus 'bullet' if outbreak mopped up quickly

Coronavirus
YEAR OF THE RAT: A resident of the city of Wuhan in the epicentre of China's coronavirus outbreak walks along a deserted street.

YEAR OF THE RAT: A resident of the city of Wuhan in the epicentre of China's coronavirus outbreak walks along a deserted street.

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An outbreak of coronavirus in China has wrapped the Australian wool market in more uncertainty.

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The Australian wool market can avoid a sustained price fall if China and rest of the world can quickly contain an outbreak of coronavirus.

That's the view of some leading players in the wool trade as growers anxiously await this week's national offering of 34,525 bales.

The Eastern Market Indicator tumbled a sickening 56 cents a kilogram at last week's opening sale on Wednesday as Chinese buyers grappled with the quick spread of deadly coronavirus within their country and beyond its borders.

However, the market roared back to life last Thursday with the EMI jumping 28c to finish the week on 1548c.

China is Australia's dominant wool export market and Chinese mills are already struggling with lacklustre consumer demand at home and around the world.

Last week's price slide would have been much worse without a 37 per cent pass-in rate on Wednesday and the withdrawal of 25pc of Thursday's offering.

Fox & Lillie's technical and marketing manager, Eamon Timms, said the withdrawal of more than 15,000 bales last week would add to a growing wool stockpile in Australia.

As a result the traditional decline in offerings when the peak supply period slowed after March was unlikely to happen this selling season, he said.

RELUCTANT SHOPPERS: The coronavirus outbreak has people in China reluctant to visit supermarkets and stores to buy food and other goods including clothing.

RELUCTANT SHOPPERS: The coronavirus outbreak has people in China reluctant to visit supermarkets and stores to buy food and other goods including clothing.

Fox & Lillie, a major Melbourne-based wool broker and exporter, partly owns a mill in Zhangjiagang where all factories have been closed until Februray 8 despite being about 1200km from the epicentre of the coronavirus outbreak in Wuhan city.

Shops, supermarkets transport, business and the population across China have been in lockdown during the traditional lunar new year celebrations.

Woollen mill contacts in China have told Fox & Lillie that business had been starting to slowly recover but was now likely to return to the uncertainty which existed at the height of the US-China trade war, Mr Timms said.

While Fox & Lillie expected coronavirus would have a negative effect on the wool market in coming weeks it didn't believe the impact would be deep or sustained, Mr Timms said.

Australian Wool Innovation-Woolmark general manager for the Eastern Hemisphere, John Roberts, said underlying consumer demand for woollen clothes remained strong.

He told an AWI podcast that prices would come under short-term pressure and growers should brace themselves for a market dip.

But there wasn't much wool in the manufacturing pipeline and natural fibres like wool were popular at the consumer level.

He hoped coronavirus would only cause a "horrible glitch" in the wool market but the length of its impact would depend on China's efforts to contain its spread.

Mr Roberts was working in China during the SARS (severe acute respiratory syndrome) outbreak in late 2002 and early 2003 which killed 774 people worldwide.

Beijing added considerably to the stress to the population caused by SARS through poor communications about what it was doing to contain the disease but hadn't repeated that mistake this time, he said.

Scott Carmody, Australian Wool Innovation's trade consultant, said coronavirus was likely to have only a short-term impact on the wool market.

Supplies of greasy wool in China and around the world were low with the exception of some Italian mills which had stocked up on superfine wools.

He said the dilemma faced by Chinese mills also gave other countries the ideal chance to grab some wool.

Mr Carmody said growers should closely watch the impact of the coronavirus emergency on China's stockmarket.

If it escaped with relatively small overall price falls, the Chinese economy might avoid major damage.

Executive director of the National Council of Wool Selling Brokers, Chris Wilcox, said the wool trade had taken two or three months to start settling down after the SARS outbreak almost two decades ago.

He hoped coronavirus would only have a short-term impact on the wool market but would add more volatility to an already erratic market.

"The first quarter of this selling season was already the most volatile we have ever seen in terms of prices," he said.

Mr Wilcox said coronavirus again demonstrated the impact external factors have on the wool market.

"Predicting what will happen from here is nigh on impossible. It is a moving feast with the situation changing rapidly," he said.

"The only thing I think anybody can say with any confidence is that it will get worse before it gets better but how long before it gets better is anybody's guess," he said.

"There will be a blow to economic growth in China and on the world economy but the level and extent is, of course, unknown.

"Looking back at the impact SARS had on wool prices in 2003, the EMI fell by 119c to 980c a kg in the first week of May 2003 when the severity and extent of SARS and its possible effect on the Chinese economy and on the wool market was recognised.

"This compares with the 28c decline in the EMI last week.

"But the market circumstances were very different in 2003 with the SARS outbreak. The EMI had peaked in a supercycle in January 2003 and was overdue for a reversal, so the SARS outbreak was a trigger.

"As well, Australian shorn wool production was around 500 million kgs. Now, the US-China trade war has already triggered a decline in wool prices from the 2018 supercycle and shorn wool production is far lower at a forecast 272m kg for 2019-20, so the impact on wool prices may be less."

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