The Australian wool market gave back a fair chunk of last week’s gains but not all of it. An overdone effort last week, plus a stronger local currency this week contributed to the decline.
This movement is in line with what is considered a normal market movement so there is no reason to think that the seasonal peak has been reached and the market is in decline just yet.
The medium merino fleece categories eased or gave back around two thirds of the rise from the previous week, slightly more than the usual 50 per cent correction that normally occurs after an exuberant bounce in any market.
Overall the market indicator, the EMI fell by 29 cents in AUD and by 18 US cents. Merino fleece types fell by up to 50 cents, whilst skirting types were much less affected. Crossbred wools eased again, although the broader microns fared a little better.
Carding wools continued their pattern of the last couple of months and eased by up to 20c.
The fundamental issue of supply versus demand is unchanged from where it was a fortnight ago, and the market understandably reacted to the previous overzealous activity during the IWTO conference.
Forward offerings of greasy wool continue to be well below the volumes of 2015 and there is only six weeks before Fremantle begins to operate on fortnightly sales.
This together with low stocks of greasy wool in China, and signs of improvement in the Chinese economy as a whole will keep buyers on the front foot.
The fact that futures prices reacted to this week’s market by only marking down the front months, but more or less maintained spring levels indicates that this week’s movement was a temporary correction rather than the beginning of a seasonal downtrend.
The fly in the ointment as far as growers in Australia are concerned continues to be the strength of the local currency. Overnight the weakness of the USD pushed the local currency to a fresh 10 month high of .7736 but it has since retreated below the .7700 psychological barrier again.
The US interest rate conundrum is fading with most analysts now resigned to the fact that there will be at least two small rises during the year, but no surprise hikes by the Fed Reserve.
Attention is now turning to China’s recovery and what that may mean for world commodity prices.
Iron ore and steel prices are both trending up again from their extremely low base as the Chinese government provides enough stimuli to keep house prices increasing, and therefore new construction that will consume more raw materials.
The other major commodity having an effect on global activity is oil, and an upcoming meeting between Russia and the Saudis to limit production will be watched closely. Already the oil price has risen by more than 10 per cent in a week and it is now 50pc higher than the February low.
Should a reasonable outcome be agreed to next week at the OPEC meeting, and adhered to by the major players, many oil traders will look to quickly switch their positions from short to long if they have not already done so. How this affects the price of synthetic prices will be interesting.
While the correlation between oil price and the price of synthetic fibres is a bit tenuous due to other factors being involved, the price of nylon is already starting to rise.
If this is followed by other plastics the strain on wool’s alternative fibre pricing will be less of an issue.
Superfine Wool
As if on queue, the price of cashmere appears to be rising according to reports from China, so this can only help superfine wool prices in general. The growing middle class in China and other wealthy individuals around the world still strive for the very best luxury clothing, and wool and cashmere fulfil this need. No doubt we will see the usual seasonal lull in coming months but the long-term outlook is particularly favourable.
Medium Merino
Mid April is still considered too early for seasonal demand to wind up, especially given the low stock levels around the world. So if would be fair to assume that buyers will increase their activity again at the new lower level and continue to provide fodder for the mills during the next month or two at least.
Each year the processing season appears to be getting a little later, probably as a result of just in time purchasing. So while last year’s June peak may be an isolated case, April and May should still be busy for mills around the world.
Crossbred Wool
The finer crossbred wool demand is still very ordinary compared to previous years. High volumes of stock and a subdued fashion trend for ladies coating material means that it is unlikely we will see crossbred prices do any better than maintain current levels for the remainder of the season.
