The trade was able to absorb the extra quantity of wool that had built up after a three-week auction recess and the Australian wool market posted a good result – not record breaking, but a healthy result nonetheless.
On Thursday all three selling centres had catalogues larger than on any other selling day for a year or more, yet prices did not collapse and growers seemed happy to meet the market which was only down a few cents.
Given the spike in the currency during the week, prices closed marginally higher in USD terms while the EMI settled down by 14 cents. The lesser quality superfine wools eased by up to 30c, but the better quality lots were strongly sought after and obtained premiums of up to 100c where the specifications met buyer requirements.
Medium merino fleece wools eased by around 10 to 20c while skirting types fared well in the lower VM categories, the faultier lots were being discounted in line with their processing cost. Crossbred wools finally broke their recent trend of losses to gain up to 20c, but carding wools were on the back foot and fell by the most of any category with losses up to 40c in what is usually a lacklustre time of year for this segment.
Although most mills are relatively quiet at this time of year, and many European countries are enjoying a summer break the three-week recess meant that raw material stocks needed to be replenished. There has been enough business activity over the recess to move some of the stocks of wooltops and yarn that have been produced so the pipeline is certainly not overly full.
Downstream buyers remain cautious and in general are purchasing only a portion of their requirements for the upcoming season as they ponder wether these prices will remain, or wether there will be the usual dip in prices during the next three months.
Price levels in USD terms are relatively high, but not extreme with 21-micron currently fetching 1125 USC/kg. Up from around 900 USC at the low of August 2015 but certainly nowhere near the ‘expensive’ levels of 15-1600 USC that had downstream users complaining back in 2011.
The smaller volumes of wool rostered in coming weeks are keeping buyers active, but favourable seasonal conditions across much of Australia are also pointing to increased production in the future. It will obviously take a few months for this increase in production to flow into the system but it will also bring the benefits of better quality wools and an increased micron profile that should provide some relief or better premiums at the superfine end of the clip.
While most of Europe is basking in the Mediterranean sunshine Asian operations have been beavering away to create new products and satisfy uniform orders. Many mills are using the current slower period to explore new products with some using wool for the first time as they switch from 100 per cent acrylic to wool blends in order to enter new higher margin markets.
The Chinese government continues its cautious approach to spending and this means that the uniform orders currently being processed do contain some synthetic blends and also cheaper domestic wool but at the same time they provide a base load of work for many textile operations.
Towards the end of the month and into September a number of textile fairs will be held across the globe with the full range of new products being showcased to potential buyers. A good result at these exhibitions in terms of number of enquiries and volumes of sales orders could generate the springboard for the market to launch upwards again following any easing that may occur during the next couple of months.
Of course the retail buyer activity will also be determined by how current sales are going across their operations and it will not really be until October that early indications are available as the northern hemisphere winter approaches. Consumer spending patterns will be affected by the state of the various global economies in which they reside and while significant progress continues to be made in the Americas the sideshow of the November 8 presidential elections often has a dampening effect on retail activity.
That circus aside, consumers in other markets important for wool around the globe such as Europe and Japan are faced with reasonable prospects. Nowhere is booming, but by comparison with recent years the outlook appears relatively stable at present.
Growers in Australia will be keenly watching the currency exchange rate and the Aussie dollar is certainly trending higher at present despite the RBA cutting interest rates again. Unfortunately our low interest rates are still much higher than what is available for savings in other parts of the world. With very little currency or sovereign risk, fund managers seeking cash deposits are able to get paid 1.5pc or 2pc over here, compared with the current scenario in Germany where you must pay the German government if you want to lend them money.
No doubt the fickle nature of the world’s currency markets will reverse the picture at some point as it was not long ago that most analysts were predicting the AUD to be in the mid-60s by year end, but at present it will keep a cap on grower returns.
