Despite some concerns pre-auction about oversupply and the usual currency volatility, the Australian wool market managed to absorb the large quantity put forward this week and the overall market indicator gained 14 cents.
Some overseas buyers had been anticipating a drop in prices given the rostered quantities, and now that this has not eventuated, they will be forced to change their strategy, and quickly. Merino fleece performed strongly with rises of up to 30 cents for the better styles. Cardings and short wools continue to be sought after by the trade and crossbred wool found enough favour to hold onto current levels.
In USD terms crossbred wools have fallen back to previous support levels on the charts but as has been the case during the past four years, this level appears to be the bottom for now. Low stock levels in overseas mills combined with the looming shutdown for the Chinese New Year period is beginning to put pressure on delivery schedules for wool tops and no doubt yarn and fabric as well. Many mills are now fully booked against available capacity until March so some enquiries for prompt or quick deliveries of top and yarn simply cannot be fulfilled.
How much demand is behind the current spasmodic level of enquiry is a vexing question, however there does seem to be a growing level of enquiry from European interests. Given the production times and shipment journey required, European mills often work further forward than their Asian counterparts, so it would be a fair assumption that demand from Asian mills will be a month or so down the track yet.
This would be a repeat of the scenario that unfolded last year where we saw demand building from March onwards and the market get very excited to jump three dollars in a very short period. There is no sign of that demand at present, especially not the fervour that surrounded the double faced fabric that drove carding prices to record levels and tended to drag fleece prices along with it as well.
Everyone along the textile chain would much rather see slow and steady price tends, as a violent uptrend or downtrend always means that someone is on the wrong side of the ledger. However at current exchange rates wool is still relatively cheap in USD terms with 21-micron fleece costing less than 10 USD per kilo so there is potential for a dollar or more upside before customers overseas start to talk about wool being expensive. Having said that cotton and synthetic fibres are all getting cheaper if anything so it will be difficult for wool prices to rise and remain high if other alternative fibres are cheap.
The wool futures market is keeping a lid on excitement at present with bid levels slightly under cash prices for the near term, however some volume did trade for February 2017 this week at 1300 cents for 21 micron which represents a good vote of confidence for the longer term price.
Overall the scenario for wool prices looks favourable with very little downside risk and at some stage a lower oil price will spur consumers into action with the extra disposable cash they now have. Much is being made of the negative effect from the record low oil prices, and certainly the Russian and Saudi economies are being constrained, but consumers in Europe where it has suddenly become very cold, will be spending much less to heat their houses this winter. Next week’s Pitti Filati yarn exhibition in Florence, Italy may provide some further indication of how the knitwear industry view the prospects for the coming season.
Superfine Wool: Already steady demand while supply had been available in the preceding six months has seen the bulk of the premium wools change hands. The offering in the next six months is generally expected to be of a lower quality as seasonal conditions take their toll, but if cardings and broader wools see an increase in prices as expected it is likely that superfine wool prices will tag along as well. Hopefully in the longer term seasonal conditions will allow production to come back into line with current demand.
Medium Merino: On the charts the 21-MPG looks comfortable with the potential to break through resistance 20 or 30 USC above current levels, probably by the end of Feb which would then allow for a decent upside trend to develop. Confidence remains the key factor and whilst consumer confidence appears satisfactory at present, the mindset of purchasing managers and retail buyers is being tested with all the negative coverage concerning the world economic situation.
Crossbred Wools: Both the 28 and 30 micron types are sitting firmly on support levels in USD terms that have held for the past four years and although the large volumes in current auctions will test buyer resolve, their merino counterparts this week showed that a large volume can be consumed with a positive result. lower oil price will spur consumers into action with the extra disposable cash they now have.