Current situation seems 'just right'

By Elders Wool
Updated November 29 2021 - 3:28am, first published 3:00am
A FEW WOBBLES: Wool prices are drifting along, but the futures market looks relatively bullish from January to June 2022.

It was another "Goldilocks" sale for the Australian wool market last week.

Values were not too strong to scare away the buyers, with a rise of US5 cents a kilogram and 10 Euro cents.



Australian growers would be pretty happy with the results, which - due to a weaker local currency - meant a 17c/kg gain in prices.

Most Merino fleece types were up by 30c/kg, as were skirtings.

Crossbred prices were firm and cardings were somewhere in the middle.

The sales volume was not huge, with 38,000 bales on offer.

But a relatively low pass-in rate of 7.5 per cent meant most of the wool offered found a new home.

This week there is a slight increase in the volume scheduled to go under the hammer - at about 41,500 bales.

But that shouldn't create too many problems for the trade, with a bit of business about and mills seeking to cover the coming Christmas auction recess as well.

Small volumes of Chinese domestic business were reported last week.

But the emphasis is on "small".

One or two segments of the Chinese market are ticking over. But the majority are much quieter than processors would like.

Women's knitwear is one area that is reportedly doing relatively well.

But things are still very quiet in the men's suiting and uniform sector.

Athleisure wear had been going well previously. But general economic conditions in China are starting to bite into this market.

Most of the modern traders, processors and manufacturers in China have only ever seen strong - basically double-digit - growth in their 30-year history.

Now that the Chinese economy is "topping-out" and definitely slowing, the consumer is becoming a little cagier and more reluctant to buy unnecessary items.

Adding to the hesitancy in China is no doubt the ongoing problems in the real estate sector, with new developers joining Evergrande at the edge of the cliff - and facing insolvency.

A government determined to steer the country through these challenges, but also impose a few new rules, is making life for the average Chinese citizen look to the future with a little less enthusiasm than in the past.



In doing so, the consumer is becoming more discerning.

This is good for wool.

But they are also more reluctant to spend on discretionary items, which is bad for textiles in general.

There is, thankfully, still a lot of export business for the Chinese processors to get their teeth into, and - of course - those processors operating outside of the China bubble in general.

The European textile trade is still going strong - and probably more strongly than usual - for this time of year.

Some are reporting that the supply chain problems are actually encouraging manufacturers to anticipate or produce early for the next season - just in case their raw material suppliers go pear-shaped again.



Shortages of some raw materials in the noble fibre sector, or specific certification schemes, are making players nervous.

Rather than wait for the new calendar year to source and start manufacturing, they are chasing raw materials now and processing while they can.

Impending lockdowns in Europe could further impede manufacturing capability, beyond the current restrictions of labour and energy cost increases.

This bodes well for the wool market in the short-term.

But it does raise a question mark for the second and third quarter of next year - if not perhaps the first quarter as well.

But that is a long way off, and the futures market remains relatively bullish from January to June 2022.



Outside of Europe and China, things are not totally quiet either.

Some of the activity in South America, from Mexico all the way down to Argentina, has shifted up a gear recently.

Fabric manufacturers servicing the American market have risen from the COVID-19 ashes, and greasy wool is beginning to move again in markets such as Uruguay.

The almost 50pc of Merino growers in South Africa with certification through the two major accreditation schemes are reaping the benefits of providing what the market wants at present - and achieving 15-20pc premiums for doing so.

One would hope they are not basing their longer-term business decisions on this current price level, as premiums will surely wane when more supply of these certified wools becomes available.

But, as the saying goes, "make hay while the sun shines".



Markets to the east of Europe are also ticking along and processing and consuming quite a bit of wool, despite some of the challenging political machinations.

The cold pre-winter temperatures have arrived and are encouraging everyone to add a layer or two, and the governments in that part of the world seem keen to maintain manufacturing activity - with plenty of government uniform orders.

Elsewhere on the Asian continent, wool processing, garment manufacturing and sales are ticking along as well.

South East Asia and India are clicking back into gear after a COVID-19 induced hiatus.

Obviously, there are still some challenges ahead, with the potential of a new variant now appearing in South Africa.

But hopefully enough "jabs in arms" across the globe will slow the progression of the virus and we can get back to some form of normality.



So, the "Goldilocks" format looks like it will continue through until Christmas.

Nobody is seriously hoping for a huge lift in prices - except maybe the carpet wool guys - and demand seems adequate, despite the slower Chinese domestic scene.

So, prices will not drop.

Although the previous pattern of up one week, down the next, was knocked out of sync last week, the current situation seems just right.

Get the latest Australia news in your inbox

Sign up for our newsletter to stay up to date.

We care about the protection of your data. Read our Privacy Policy.