A STRONGER currency took some of the shine off the Australian wool market last week with a dip in the average indicator of 15c.
In US dollar terms, however, the market remains relatively robust and increased by US7c over the two days of selling. Stylish superfine wool was well supported, following the tone that has been evident in recent weeks, but buyers showed a little more reluctance towards the lower specification lots.
Medium Merino fleece eased by between 20-40c but skirting types highlighted the strength of the knitwear market, as did the carding segment in general. Crossbred wools fell on the currency sword and eased by up to 50c following the trend set earlier in the week in the New Zealand market which saw prices also ease by as much as 5 per cent for their similar wools.
Globally the wool market continues to meander about looking for direction. Prices in US dollar and Euro remain on the higher side of what would normally be expected at this time of year, and certainly higher than many processors were expecting. An interesting conundrum presents for many spinners, knitters and weavers as the time approaches for them to lock in raw material supplies for the coming season.
This week has seen some take the plunge and purchase a portion of what they need, while others are still testing the water by sending out price inquiries to their suppliers. Many others still sit on the fence-pondering wether to purchase in the near future or wait for the seasonal dip in prices that normally initiates buying activity.
From a technical perspective the prices for merino fleece wools in US dollar are approaching a line of resistance on the charts, but still remain clearly within their rising channel that now extends back to mid 2015. Any further increase in price from this point would signal a very strong market and one that has potential to increase significantly. A more likely scenario is that the market will remain in a holding pattern for another two or three weeks before making the ultimate decision.
If the Australian currency does increase from current levels, or supply of wool on offer increases rapidly it may be enough to precipitate a dip in the market. Such a downturn in prices, if it does actually eventuate will be short lived, with so many downstream processors yet to fill orders and no real negative signs on the economic or consumer horizon.
Goldman Sachs Australian division reported that, in their view the global economy is recovering and following the US out of the deflation cycle that has gripped markets over the past eight years. Core inflation in the US is now reaching 2.2pc, unemployment stands at 4.9pc - close to full employment, financial profits are up considerably and the PMI is currently 52.1 in a further sign of ongoing expansion. All that remains to lock in the notion of a recovery would be for the Federal Reserve to act decisively at their September meeting and raise official interest rates.
The other major world economy of China is also showing positive signs with import figures for August unexpectedly rising for the first time in nearly two years, boosted by coal and other commodities, which suggests domestic demand may be picking up according to a recent HSBC report. Exports from China also showed signs of improvement according to the report, falling by a less-than-expected 2.8pc from a year earlier, as demand in the US, Europe and even Japan increased. Although only the proverbial green shoots of a global recovery, nevertheless positive signs that will hopefully flow through to consumer activity in coming months.
Consumer confidence is vitally important to the wool industry as always given the discretionary purchase nature of so many woollen articles. Certainly good progress has been made to highlight Merino fibre in a whole range of new and exciting products, many of which are at the high end of the casual and active-wear wardrobe but consumers still need to feel positive to hand over their cash.
As the last quarter of 2017 approaches one would hope for cold temperatures throughout the northern hemisphere but more so, stability of the economic platforms around the globe so that consumers can reward themselves with a new set of next to skin merino garments.
Superfine: The European buyers continued to make their presence felt in the auction rooms this week, and with some Chinese mills in a short position for 17.5 and 18.5 Merino the basis to 21-micron should continue to widen.
Medium Merino: Although prices eased this week, and the futures market followed suit, current levels are still a way above long-term average prices for September, and with sheep and lamb prices also cranking up, there has seldom been a better time to be a Merino producer.
Crossbred: The current lack of demand situation will resolve itself in the next couple of months, and in the meantime crossbred wools are unlikely to fall if Merino wools head up.
- Bruce McLeish is Elders northern wool manager.
