A favourable currency trend that saw the Australian dollar ease from last week’s high of .7680 to the mid 75s allowed the wool market to remain more or less unchanged in USD terms this week, but rise by a solid 11 cents in local currency.
All merino fleece types recorded gains of 10-20 cents with some of the best superfine types extreme. European buyers were very active as expected in the designated superfine sale held in Sydney this week, and paid premiums of up to 200 cents for the best quality superfine lots on offer compared to the normal bread and butter types.
Medium merino fleece types were well supported in all three selling centres with discounts for tender wool and moderate VM content remaining negligible at this stage. This will change as the supply of tender wools increases during the spring, but at present the discounts remain small.
Knitwear types – pieces and bellies – are being well supported as the spinners look to begin production of these types for the forthcoming knitting season. Carding wools were solid but are yet to show any signs of trending upwards.
The crossbred market provided some mixed signals with the finer end showing strong rises, but the bulk types of coarser than 28 micron easing back a little as was also the case in the New Zealand market. Over there most wools eased by 2-3 per cent despite an easier currency with lacklustre demand for these wool types being quoted at present.
At 1473ac for the eastern 21 micron type the wool market is in a very healthy domain, and incidentally at a level not seen in September since 1988. It does however have a decision to make in the coming weeks about whether to hold the current levels, and perhaps try to rise from here towards the Christmas period, or ease back temporarily to generate some more demand.
There are many processors around the world waiting for the latter scenario to occur, as that would be normal activity for the wool market. They are judiciously calculating their requirements for the coming season at present and entertaining clients at exhibitions that are starting to be held around the world. If the market were to ease slightly and then bottom out we would see a flurry of activity as these processors look to lock in their 2017/18 requirements.
The Nanjing wool market conference which is so often a trigger point for a rise in prices, as buyers and sellers congregate at the conference, is due to be held in Wuxi, China on September 23 – 25. So the market possibly has three weeks to meander along before finding some strength later in September.
How sustained this strength would be is always a point of conjecture, but given that the current market is being sustained purely on Chinese domestic demand at present it would be difficult to see too much of a correction after the action has started and other buyers from Asia and Europe join in.
Chinese domestic activity centred on uniform orders is providing a base load of production for spinning and weaving mills there at present. Margins are tight but it is keeping mills busy. In turn the exporters and topmakers are actively purchasing enough raw material to keep the pipeline flowing.
Other markets around Asia and Europe are by comparison very quiet with some processors deciding to hold off purchasing until October while others are just looking for an opportunity. So as we often see in the wool market, the buyers are circling like a mob of sheep at the gateway, and when one goes through….
All eyes will be on the US government employment data release for August, which hits the wires on Saturday morning Australian time. Economists say this could determine whether the Fed raises interest rates again later this month or in December. Current betting via the futures market is only about 25pc for a rise in September, but this could quickly change with a positive jobs result.
Elsewhere around the world numbers remain relatively positive as well. In China the important manufacturing sector expanded at its fastest pace in nearly two years in August as construction boomed, suggesting the economy is steadying in response to stronger government spending, according to a HSBC report.
The official Purchasing Managers Index (PMI) rose above 50 to 50.4 for the first time in a long time. One swallow does not make a summer as they say, but signs are decidedly more positive in China. Also in Germany HSBC reports that consumers are becoming more active with retail activity increasing by 1.7pc in real terms from January to July compared with the same period last year.
Superfine Merino: A positive showing this week in the Sydney sale has built a good foundation for the rest of the season, and superfine prices are now at their highest point for 12 months.
Medium Merino: The futures market on Riemann continues to perform well with 21 micron moving above the 1400 barrier for November as exporters cover nearly every sale they make. While there is still talk in China of high prices, and low demand holding people back from going ahead, the outlook is far from negative and we really only need to survive the September period before getting a clearer picture.
Crossbred wools: A different, less positive outlook at present for crossbred wools, however should merino prices increase, crossbred will no doubt follow in percentage terms at least.
