Increased supply pulls back wool market | Elders

Increased supply pulls back wool market


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EASIER MARKET: An increased offering at wool sales in the past week pulled the market back.

EASIER MARKET: An increased offering at wool sales in the past week pulled the market back.

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An increased offering at wool sales in the past week pulled the market back.

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INCREASED wool supplies at auction tipped the balance back towards the downside in the past week, as buyers were faced with plenty of choice and could afford to be selective.

With less tension and competition in the auction room prices eased across the board. The eastern market indicator (EMI) shed 28c in local currency terms but a rising Australian dollar meant that we only registered a decline of US18c.

European buyers saw the largest discount of 33c for the week. Price movements were fairly similar across the micron spectrum with most micron price guides (MPGs) falling by an average of 20-40c. Better style wools held up reasonably well but were offset by larger falls in the low spec variety. Carding wools were less affected and eased by only a few cents.

AWEX’s northern market indicator closed down 27c on 1348c. The 17 micron indicator closed on 1643c, 18 micron 1622c, 19 micron 1545c, 20 micron 1439c, 21 micron 1378c, and 22 micron 1352c, 28c micron 706c, and 30 micron 565c.

Although next week has another ‘large’ offering of 51,000 bales, at this stage the four week forecast shows an increase of 2.53 per cent of wool being offered for the season so far compared with the same period last year. It’s hardly something to get excited about and certainly does not point to an oversupply problem. 

However, it is a welcome trend after so many years of falling supply, but one cannot help but think that the market is getting a little carried away with talk of temporary ‘oversupply’. Often the wool market needs to take a breather, to allow prices to consolidate as has been mentioned in previous reports.

Usually a trigger is required to get the mob to change activities, and the sudden increase in auction volumes has obviously been this. With such small volumes in the pipeline and many topmakers booked out until the New Year it will not be long before things revert back to a rising tendency again. But the market will be stronger for having established a beachhead, so to speak, and once the correction has run its course (usually three weeks) prices will begin to increase again.

There was some respite for the European buyer and processors this week as the Euro strengthened significantly against the US dollar and other traded currencies. German inflation continued to measure higher than expected, providing some speculation that the European Central Bank may be able to wind back the money printing machines soon.

Financial markets love a bit of speculation and the chance to write spectacular headlines – which is coming in droves at present courtesy of the US media and their frenetic build up to the presidential election. Will he or won’t he win, will someone else altogether win, will Clinton survive the email saga are just some of the dramatic headlines being thrown around to encourage readership or viewers to tune in.

Much of it is simply background noise, nevertheless unsettling for world currency and equity markets, which also feeds into consumer activity as a result of confidence or lack thereof. After November 8 the world can hopefully settle down, assuming we have a clear result, and get on with the real business of growing, processing and selling woollen garments.

The swing towards premium status for Merino continues with some manufacturers being urged to use more wool, less synthetic and concentrate on higher end products in order to differentiate themselves from the basic commodity style garment or fabric. A positive trend, which is being recognised in markets across the globe from Japan to Europe as retailers come to the understanding that a simple, cheap wool/polyester blended fabric, is not what consumers are searching for.

There is still a place for cost effective uniform fabrics that can provide the company uniform and sense of belonging to an organization, at the same time as looking and feeling good with the qualities Merino brings to a garment. But increasingly retailers are looking for the edge or trigger to entice consumers to open their wallets and often a higher priced, premium item actually does this better than a cheap item on special.

Whether this is a story of provenance, a back-story about the producer or simply a garment that enhances the day-to-day life of the wearer, retailers are increasingly asking for the differentiated product. Mass marketing of thousands of meters of fabric is difficult at the best of times, and more so as the price of Merino increases, so to provide something that takes the discussion away from price is an important strategy. Expect to see much more marketing campaigns in the coming season around the scarcity, ethical and environmental attributes of Merino.

Superfine: Even with the general soft tone across the market this week best topmaking or spinner style wools were unchanged in price highlighting the consistent demand from European buyers for these better quality wools.

Medium Merino: Demand signals via the futures market are a little uncertain at present, no doubt in part due to the murky production data coming forward making it difficult for buyers to ascertain the volumes that will be available in the New Year. Assuming the present correction runs its course and we find stability in another week or so, the rebound in prices pre Christmas could be interesting.

Crossbreds: The coarser wools are still desperately searching for the bottom of the pond, but at some point in the next two months prices will surge upwards and people will be saying, “I told you so”.

Bruce McLeish is Elders northern wool manager.

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