Despite a much stronger Australian dollar this week the wool market showed surprising resilience to increase by 6 cents overall with mid micron merino wools leading the way with a jump of 25 cents. The stronger local currency meant that the increase in USD terms was a significant 21 cents overall.
In a market where demand is not particularly strong most sellers of greasy or wooltop found it difficult to increase their prices by this amount and so will be forced to either wear some of the loss, or price in a correction in coming weeks.
The superfine wool segment failed to gain much ground with a mixed quality offering testing the resolve of buyers and poorer style lots were discounted quite heavily as one would expect given the time of the season. Clearly the Chinese trade is focused on generic production types for uniform orders, or simply filling machines at present, hence the emphasis on type 55 and 56 (21.0 and 22.6 micron) with most other types being of lesser interest.
All the economic talk this week was about the Brexit referendum in the UK and how either result would affect the world economy. So much hype has been generated and volatility in trading markets increased to such a degree that several currency platforms simply told clients they would shut down just before the vote and would only reopen when the result had been made clear.
The reduced liquidity in currency markets made for some spectacular moves, with the AUD at one point trading above .7600 USD on Thursday night before falling a full cent on Friday morning. Counting of votes is expected to continue until late in the week or even over the weekend, and there will no doubt be many newspaper column inches devoted to ‘what if’ statements.
Unfortunately the whole campaign was a fairly devisive affair and is unlikely to be settled even when the final tally is announced, given the statements and accusations made by each side during the campaign and the lingering resentment created by the campaign. Once the dust has settled from the UK situation the world will be able to get back to work on the important issue of growing the world economy, which is still on a fragile footing.
Data from the US is still trending upwards, with unemployment data the best and most stable for more than 30 years, and housing sales similarly pointing to growth in the world’s largest economy.
China and the evolution of its economy to a services oriented model has been way down the list of media attention in recent weeks and it seems to be progressing well. No doubt there will still be some challenges along the journey but certainly the Mandarins in Beijing are enjoying the lower degree of media attention and constant interrogation of their data output.
Wool processing companies in China are still under pressure from a credit and environmental regulation point of view, with a couple of notable casualties in recent weeks, however in the main they are optimistic in their outlook. To a large degree the fashion trends evolving from Europe at present will dictate the fortunes of the wool processors in China. Not just from a European customer aspect, but also more and more from the Chinese consumers, who form a growing portion of the Chinese processed garment market.
These increasingly affluent consumers will seek to copy the styles and look of the European trendsetters and the pure number of this growing segment of the population makes them so important to the wool industry.
With summer in full swing in the northern hemisphere it is encouraging to see the attention being given to wool in many collections given that wool has historically been seen as a winter only fibre. Besides the obvious benefit of having wool spread throughout the year, rather than just relying on a winter sales event, increasing the amount of wool sold in spring/summer collections should ease the seasonal price volatility that has been the bane of so many in the industry. It will not happen overnight, but as wool becomes a more trans-seasonal fibre demand will obviously last for longer than the current seasonal pattern.
To smooth out the troughs where demand for wool all but disappears due to the production cycle for autumn/winter collections would be a huge benefit. In theory it should allow the price to remain more stable throughout the year, and give greater comfort to buyers of greasy wool in Australia that their purchases in June, July or August are less likely to become an expensive mistake come September.
Of course like all change in the wool industry, this will take time and in the meantime futures are providing some excellent hedging opportunities in such a volatile global environment. The past 12 months have highlighted the effect of currency on the prices received by Australian woolgrowers, and while some ‘experts’ are predicting a much lower AUD in coming months, others are also pointing out that the USD is overvalued by some 20 per cent or so. Being able to lock in prices for a 21-micron clip to be sold in September at 1340 or protect the downside risk for around 40 cents of this price, thus ensuring that the price received will remain above the 85th percentile for the past five years is a strategy most producers around the world would love to have access to.