Wool market outlook positive

Selling on Tuesday and Wednesday last week proved to be very fortuitous with the currency only climbing after auction sales had concluded for the week.

The Federal Reserve in the USA raised interest rates by 50 points, not as much as some had hoped, and basically told the market they would not be doing any larger rises than 50 points in coming months.

So, the market trashed the value of the US dollar, briefly, pushing our currency up by a cent and a half on Thursday.

By Friday, things had begun to settle again, but no doubt further volatility will ensue in coming days and weeks.

The wool market performed better than most had expected with a rise of 24 cents in local currency terms, a 16 gain in US terms, regaining 50 per cent of the previous week's losses, and also an 18-Euro cent gain for the week.

All Merino types fared very well, with rises of 20c to 50c spread across the micron spectrum.

No doubt the lower overall volume proved to be a positive factor, and certainly after subtracting the sustainable certified wools, those with excessive vegetable matter or other fault, and the large crossbred sector, the remaining volume of "bread and butter" Merino wools is fairly scant, causing buyers to fight pretty hard to fill orders.

Knitwear types continue to be in high demand given the popularity of this style of garment.

Crossbred wools are still moving through the system, ending up in lower priced knitwear and upholstery, but without breaking any new price records just yet.

The positive note for these wools is that the stocks are being reduced, so that when a surge in demand, or a new product is created, the price can lift and will not be weighed down by an overhang of supply, which looked like being the case a few months ago.

Everything is looking positive around the globe for the wool industry, despite some fairly large impediments still out there in the form of wars, COVID-19 lockdowns, inflation and logistical bottlenecks.

Some commentators in China noted that early stage enquiry had been brisk, but enquiry from knitters and weavers was slow.

European knitters and weavers on the other hand are producing as fast as their limited labour forces will allow, and processing orders for the new season are already being placed in anticipation of an active selling season.

Inflation is a growing concern in just about every major economy across the globe, but may not be a bogey for the wool industry, as AWI director Georgia Hack commented on this week's webinar when asked about how demand for wool was looking in the face of global inflation and economic uncertainty.

Ms Hack pointed out the growth in sales made by luxury brands globally, and the fact that many of them are using more wool than in previous seasons, together with the increased consumer activity with a mindset of eco conscious or environmentally aware consumers who are searching for value, quality and longevity of a product.

Together with the new innovations made by wool's processors and designers which are seeing much more wool consumed in the burgeoning 'ath/leisure' wear sector, where the performance characteristics of wool make you feel better, and perform better in the gym or on the couch.

All three factors ensure that wool is pretty well placed, by comparison, to weather the impending economic storm.

Certainly, plenty of people throughout the processing pipeline could be forgiven for buckling under the constraints they are facing at the moment, but it seems that nobody is - yet.

The Australian exporters have managed their finances through the peak of the season, and now would be breathing a sigh of relief that weekly offerings look to be reducing, and whilst the shipping backlog has not cleared, it would seem that it is not getting any worse.

Those stuck in Shanghai working remotely are hoping their instructions are being followed correctly in the processing facilities just down the highway, but out of reach in Zhangjiagang or Tongxiang.

Even just getting samples or documents from the mill to the home office in Shanghai is a marathon effort, sometimes taking more than 10 days as the lockdown continues across most of Shanghai.

Traders and processors in Europe and other countries only have the limited amount of stock on hand to work with, as new shipments are continually delayed, with shipping vessels backed up at every port awaiting their turn to unload.

Yet, new orders for next season are now beginning to be placed, with shipment from China for wooltops and yarn now July or August at best, European mills are now placing orders for September arrival.

Other fibres such as cotton and polyester continue to rise in price, as do the noble fibres such as cashmere and silk.

This backdrop is positive for wool prices in the medium term as it is very unlikely wool prices will drop when others are increasing, particularly when wool is not that high in price.

The 17-micron MPG is currently sitting at an 85 percentile over a five-year period, but both 19- and 21-micron MPGs are below 40pc over the same time period illustrating their relative 'low' prices compared to the past five years.

By comparison cotton is at 100pc for the same time period, and as yet not showing any signs of slowing given the looming shortage of supply exacerbated by dry conditions across the USA

So, the outlook for wool is surprisingly positive given the big picture globally, but as mentioned at the outset, volatility is back as well.