The Australian wool market was again saved by the currency movements.
In USD terms, the market looks weak, losing 40 cents as logistical issues locally and overseas, and the Chinese lockdowns cramp activity right along the pipeline. But in local currency terms the market managed a 10c gain for the week, surprising most people and pleasing growers no doubt.
A lot of the USD weakness was driven by buyers' selective purchasing, and avoidance of anything which was not up to spec, but with the international scene looking more and more unsettled, everyone is on tenterhooks and wondering which way it will now go. Demand and currency issues aside, the market was positive for both superfine and medium Merino fleece wools with gains of up to 30c compared with the pre-Easter price levels. Pieces, bellies and combing length lambs were all in good demand as the knitwear season continues apace. Carding wools were a little mixed depending on fault levels, and crossbred wools fared quite well.
In NZ, a relatively small offering saw very good results, with buyers scrambling to fill existing orders and prices rose by 5 to 7 per cent - again in local currency terms, but the long climb off the bottom for carpet wool looks like continuing. In South Africa they bravely held an auction, even though their main customer remains locked out until the FMD issue is resolved. Officials from South Africa are in China seeking to resolve the problem, but presumably locked up in quarantine like so many others. The result at the Cape auctions was a 60pc clearance of a smallish catalogue as buyers were either operating for Indian or European orders, or purchasing Lesotho wools which remain unaffected by the export ban.
The resilience of the wool industry to the global logistics challenges, and the Chinese COVID-19 situation is definitely pleasing, but is also going to be tested further in coming weeks. Prompt demand from Chinese mills for top and yarn was evident this week. Export orders continue as well as European mills finish off current orders, then look to restock the pipeline again.
There has been plenty of greasy wool enquiry to the Australian export trade from China in the latter part of this week as well, as traders and processors in China anticipate an increase in demand when the shackles of COVID are removed. The usual sweater-making season, from May until July is still "on the table".
However, with most exporters in Australia now only able to offer June shipment, and the Australia to China transit time more like six to eight weeks these days, rather than the previous 21 days, these current enquiries will also be refilling the pipeline, rather than contributing to production orders for the current season.
Nevertheless, supply from Australia is beginning to wane - as is usual for May - with only 41,000 bales rostered for sale next week. This may be contributing to the Chinese buyer enthusiasm. With cotton having a stellar price run, on the back of supply concerns, it is difficult to see wool prices coming down too much. New plantings of cotton across southern USA are reducing by the day as rain fails to materialise, pushing down production forecasts.
China has begun stocks buying from the US as well, indicating perhaps their usually secretive government stockpile levels are not as big as expected. This, and the potential lack of export from India is pushing the cotton price up higher and higher. Current prices are well over double the pre-pandemic level, so it is pretty hard for processors and retailers to be complaining about the price of wool, which in USD terms is only at the same price point as when the virus emerged.
So, downside for wool prices in USD terms should be limited, and potentially higher in AUD terms if the currency trend continues. Upside is probably limited or capped by the uncertainty of where we will be in six months. Given most of the wool for the autumn/winter 2022/23 season has now left our shores, and we will just be refilling the pipeline from now on, buyers in any market will be a little reluctant to pay more for something they are yet to sell.
The mood of shoppers in the US is quite positive, but just how successful the Federal Reserve is when it comes to taming the inflation dragon is critical. The European market, so important for wool, is holding up well, but getting pummelled by the uncertainty of the Russian/Ukraine conflict as well as a potential inflation outbreak. Then we have the Chinese consumer, who arguably ranks at number two for the wool industry these days.
While they are normally reluctant to be critical of government policy and procedures, the current situation is creating a bit of angst and plenty of chatter on WeChat - much of which is quickly removed by government censors. Shanghai is still under strict lockdown, and Beijing is heading that way. The impact on the Chinese economy is expected to quite severe, and President Xi has reportedly said he will do whatever it takes to restore economic activity.
