It has been another solid week in the Australian wool market again without any extreme moves. The EMI managed a gain of 6 cents on what was a fairly small offering on the east coast only, with Fremantle having now moved to fortnightly sales.
The currency was remarkably benign during the week but maintained a softening trend overall. The weekly movement in the EMI when measured in USD was very similar to the AUD movement, rising by a few cents.
Merino fleece types maintained a positive direction with the exception of some superfine types that were a little softer. Skirting types followed and the few lots of crossbred wool available finished 20 cents higher. Carding wools saw buyers keen to purchase their requirements in a small offering and prices rose by 10 to 20 cents. Given the limited volumes on offer last week buyer discounts for off style wools were appreciably lower.
The market was noticeably stronger on Thursday as new orders from China and presumably further concerns about supply in coming weeks spurred buyers into action. While there is nothing unusual about the current supply, and the reduction in Australian wool production has been well telegraphed, the reality is now upon us with South Africa entering their two-month recess, South American wools being in relatively short supply as is the case in New Zealand.
That really only leaves a reduced volume available in Australia with no grower stockpile to add to the market as we saw last year, and the upcoming Chinese domestic clip. Those production mills with low stocks of raw material – most of them – are understandably getting nervous about having enough wool in the pipeline until volumes increase again after the July/August recess.
This should see wool prices more or less maintain current levels through until the recess, and this is a view shared by the more astute traders and buyers in China. The focus will shortly turn to trying to predict the direction of the market in the new season.
The wool industry is approaching the end of the processing season. The bulk of the final garment processing is now under way and these products will be on the shelves across the northern hemisphere by September 1.
The reason that new orders for greasy wool, top or yarn are not prolific at the moment is simply because the drivers of the demand, the retail buyers, are going to wait for the first signs at a retail level before announcing their intentions for the next season. Also in late August/early September a number of yarn and fabric fairs will be held where manufacturers will showcase their new offerings for the 2017/18 season. It is not just at the genetic breeding end of the wool industry that people need to be focused on the long term, but the nature of fashion and the long production pipeline for wool also requires a long-term view.
In contrast, the analysis and constant updates of global economic outlook, growth predictions and consumer intentions that retailers need to look at to plan their purchasing programs seems an ever changing scene. It would be easy for the uninitiated to spend a huge amount of time vacillating between different views on the direction of the economy.
Often one needs to sit back and look at the bigger picture, form a view or take a position on a strategic direction and then maintain that stance until a significant event occurs. One viewpoint would be that the longer-term outlook for wool remains positive. The US is growing market for wool among the casual, active, and leisurewear fraternity. The economic conditions in that market are moving towards a long term, but slow recovery with inflation increasing, employment almost maximised and interest rates soon to rise again.
China, the other significant ‘new’ market for wool, remains positive. Although the transition in the economy will be difficult for some, it is positive for those in the middle and upper classes and they are the new consumers of wool.
These consumers have the ability to purchase the product, and are listening to the message about the benefits of the fibre being put forward by the marketing gurus involved in the industry. For the woolgrower and the processor this will mean steadily increasing prices over the longer term, balanced with the seasonal price cycle.
