Stylish wools draw premium

Market holds steady despite large offering


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Despite an increase of 10,000 bales being offered the market saw little change in prices this week.

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In coming weeks growers in Australia will be at the mercy of the currency markets as has been the case for the past 12 months or so.

In coming weeks growers in Australia will be at the mercy of the currency markets as has been the case for the past 12 months or so.

Despite an increase of 10,000 bales being offered the market saw little change in prices this week. In USD minus 6, in Euro no change, and in AUD also zero change for the EMI over both selling days. Overall a good result given the reasonably large offering, and also with nearly 50,000 bales to be offered next week as the wool held up due to wet weather finds its way to store.

Buyer’s limits are being tested with the increased quantities at present, but most agricultural commodities endure similar boom/bust cycles of raw material harvesting, and the trade is also well aware that there are only 7 weeks until the annual three week recess in sales for Christmas.

As was to be expected in a large offering the premiums for better tested more stylish wools gained a little this week, as buyers were able to be more selective. The finer merino types held up well and according to AWEX maintained their recent 5-year highs. Medium merino wools oscillated around current prices and skirting types remain well sought after. Crossbreds endured another sluggish session whilst carding wools gained further momentum and registered a price increase of 20 cents across the nation as the knitwear season heats up.

Overseas there are some murmurings about the high price of wool particularly in the finer segments, compared to last year. For some processors and retailers who are yet to acknowledge merino’s new market position this is an issue. The current price of 18.5 micron greasy wool at around 12.30USD/kg is certainly higher than the level of October 2015 (10USD/kg) or 2014 (11 USD/kg) but on par with levels back in both 2012 and 2013 where it was around the 12USD/kg mark. So the comments about wool getting expensive are short sighted, and ignore the premise that merino is these days a premium fibre in scarce supply and best suited to be used in high end garments rather than those for everyday use. Certainly those companies such as Adidas who are marketing a premium 100 per cent merino tracksuit around the $300 dollar mark can withstand a raw material price upwards of $15/kg.

Conversely those companies who are still producing and marketing woollen products at lower price points or commodity style garments do and always will struggle when the price cycle for wool turns upwards. The long-term prospects of the merino industry depend on supporting those companies and products at the pointy end of the fashion industry where the price calculations allow for a higher raw material cost, rather than those producing a generic, low cost garment from a raw material that is subject to the vagaries of commodity cycles.

To do so will no doubt involve serious marketing efforts and also increasingly necessitate further efforts on traceability, promotion of environmental and ethical credentials to justify the position of the fibre among the elite.

Whilst the outlook for merino, especially at the superfine end of the clip, appears very sound with technical analysis pointing towards a higher peak late in 2017, there does need to be a period of consolidation around current price levels. This will allow the market to dispel the nervousness surrounding recent price rises, most of which are yet to be passed along the pipeline.

The increased offering levels in coming weeks could well be the mechanism to allow for a stable price platform to be established so that the current price level in USD can be cemented into place. Of course growers in Australia will be at the mercy of the currency markets as has been the case for the past 12 months or so. The local currency rose strongly earlier this week, but significantly failed to hold above .7700 for the 10th time in the last 7 weeks.

Perhaps the ceiling is in place and the strengthening USD will be reflected directly in local wool prices in coming months.

Currency is also playing a part with European demand – unfortunately in a negative way at present. The Euro has weakened significantly against not only the USD, but also the AUD in recent weeks. Whilst for those companies re-exporting their finished garments from Europe this come in handy, the EU is a large consumer market for woollen garments. The market indicator has risen strongly in Euro in recent weeks from 879 at the end of September to 932 today. Like for many other customers around the world a period of consolidation to let people become adjusted to the new price level is required. Price levels take a while to flow along the length of the supply chain, and it has always been difficult to contract business when the market continues to move every week.

Superfine Merino: Demand from Asia for superfine wools appears to be waning slightly at present and this may stop the upward momentum for prices temporarily, however the better types still have plenty of suitors.

Medium Merino: The market is looking for consolidation rather than continued price increases, and the futures market would appear to reflect this view with 2017 prices remaining lower than those for the current year.

Crossbred Wool: At some stage the price differential will become sufficient for crossbred wool to come back into favour, as would a decent hit of cold weather to move some sweaters and overcoats.

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