The Australian wool market again performed quite well last week given we are still at the slow point of the processing season and buyers face uncertainty about price trends and volume for the forthcoming season.
The result overall was an increase of 1 cent in the EMI with rises in superfine wools and crossbreds offsetting similar declines in the medium merino segment. A strong, but relatively stable local currency had little effect on the wool market last week and overall, prices rose by just 1 USC across the week.
Buyers seemed to be less critical when it came to lower spec wools last week, no doubt in part due to the continued tightness of supply with next week’s offering a meagre 32,000 bales in Sydney and Melbourne only.
Superfine wools appear to be gathering steam for a jump in price as buyers look to obtain their share of the available quantities of high quality lots available. In a similar scenario to last season the European buyers are acutely aware of the volumes of wool available that meet their specifications as well as the seasonal nature of this supply.
Adding some impetus to the sales activity is no doubt the continued positive seasonal conditions that point towards, at long last, a broadening of the clip profile with less hunger-fine wool contributing to the volumes of superfine wool on offer. While there is still a long way to go before we call the season a good one, present soil moisture and the continued BOM statements about La Nina certainly raise the prospects of a better spring this year.
While this will no doubt be beneficial for the quality of the Australian wool clip, it does flag a bit of uncertainty among the buying/processing fraternity about supply volumes and whether they should be cautious in their buying activity or replace exhausted stocks more quickly.
Traditionally the August-October period sees the wool market have a dip, often by as much as 10 per cent when increased stocks and low inter-seasonal demand coincide to produce a price-reset period. To date there has been little evidence of this ‘reset’ event occurring and this is causing some consternation among the processing fraternity.
Many European manufacturers are returning from annual holidays to near empty warehouses and wondering if they should immediately restock or wait for the usual dip in prices before placing orders again. To date the market has shown little inclination to ease by more than a few cents, and certainly nothing like the usual 10pc adjustment.
The futures market indicates that there will be little in terms of a correction in coming months with 21-micron trading at 1425 for September, so downside appears to be limited to perhaps only 20 or 30 cents. However if the market were to ease by 20 or 30 cents in coming weeks, and then start to rise again, these purchasing managers would feel more comfortable that they have made the correct decision to capture the maximum seasonal opportunity.
The Chinese domestic market is neither bullish nor stagnant at present, with generally low stocks keeping indent buying houses active and small but consistent government uniform orders providing a baseline of production activity.
While crossbred coating material has fallen from grace this season and in part led to the lower crossbred prices seen in recent months, and the normalising of the double face fabric production eased off the carding wool segment, a new sheepskin like product made from 19.5 to 21.0 fleece wool is generating some interest. The product is still to be tested in the retail market in the upcoming season, but early signs appear promising.
Add to this the significant increase in leisure and sportswear apparel across the globe and the final product mix for wool certainly looks very different from decades past – and a lot more sustainable. Even if there is an inter-seasonal dip in price as some would like to see in the next couple of months the scene appears to be set for a continuation of the uptrend in USD prices that began in late 2015.
Wool is not overly expensive at present, cotton is also increasing in price but man-made fibres are still languishing at the bottom of the medal table. Acceptance of merino as an elite, sustainable, environmentally responsible, limited quantity and therefore expensive fibre is key to consolidating a longer-term price uptrend than the usual 18-month to two-year scenario often seen.
Superfine Merino: As mentioned the limited seasonal availability of stylish superfine wools will ensure plenty of buyer activity in the next few weeks and premiums for the best will increase further. Improved seasonal conditions will reduce the volume of poorer quality superfine wools and this will help increase prices for the segment overall.
Medium Merino: Low greasy offerings combined with mill demand to cover uniform orders as well as refilling empty warehouses will ensure that downside is limited in coming months. A relatively small dip in prices may actually be beneficial in the long run as it will solidify buying decisions from those who are currently sitting on the fence.
Crossbred Wools: Buyers have held off for a bit too long and while demand is still not great, stocks have reached perilously low levels, so activity in the saleroom has picked up a notch or two. How long it lasts will depend to a large degree on retail sales activity in the next three months – i.e. northern hemisphere temperatures and demand for sweaters.
