Minus 5 – not the wool market, but the overnight temperature most days last week in Beijing. The sudden burst of cold weather has brought a degree of optimism to retailers and therefore processors, which quickly flowed down the processing pipeline to create a strong market in Australia last week.
A further strengthening of the USD meant the Australian wool market almost notched up a half century, with the EMI rising by 49 cents over the three-day selling week. In USD terms the market was 21 cents higher and the European fraternity saw prices rise by 35 Euro cents. Superfine fleece wools increased by 60-80 cents while the medium Merino types added 50 cents in most centres. Carding and shorter knitwear types were strong, although less affected than the fleece types, but still increased by 20 to 50 cents. Even crossbred wools gained up to 20 cents, which may herald the turning point for these wools.
Wool is being used in a vast array of products these days, and even becoming popular in warmer climates as consumers come to understand the benefits of wearing wool in hot weather as well, but nearly ever year we see a blip in price activity and demand when the cold weather sets in.
A sudden blast of cold has consumers reaching for the winter woollies, only to realise they had been putting off the new purchase until it got really cold enough, or waiting for the new season’s collections to come through. Wools purchased at auction this week are not going to hit the shelves for a long time yet, but the improvement at a retail level did release a bit of pressure at that end of the pipeline.
The cold weather is not confined to China, with places like Moscow being blanketed in fresh snow and forecasters predicting a cold December. Europe also is getting cooler, with temperatures generally well below 10 degrees on most days.
Whether this is enough to stimulate demand in the medium term is still a question, but it has created a flurry of activity in the auction market and some buyers were scrambling to fill orders that had been previously sold against the competition from new indent orders that came in courtesy of the lower local currency.
With only three auction weeks remaining before the Christmas recess and a general belief that not much wool is being held over for the New Year sales period compared to previous years, many buyers hit the panic button. A jump of more than 50 cents for most fleece types will test the resolve of the market and many garment makers in Europe have been reluctant to increase their purchasing to last month’s levels, let alone the new price of last week. It will take some of them a while to consider their position and get off the fence. However for those who struggle to make a quick decision it could become rather ugly if this market rise does continue.
From a technical perspective the different segments of the wool market have slightly different outlooks, although with most holding or pausing in the short term before further sustained rises being possible in the future.
Last week’s activity in the auction had all the hallmarks of a short-term squeeze with poorly tested wools bringing similar money to better grown types. The discount for overlong wools, which so many processors make negative comments about during grower visits almost disappeared in the scramble for quantity last week. This sort of situation doesn’t last for long, and there will be a necessary correction at some point, even if it is only to restore the processing discounts to normality.
The bigger question will be if the processing and retailing fraternity can adjust their thinking quickly enough to sustain the activity of last week. Given the comments from some people in the trade about the lack of business on their desks at present it will certainly make people sit up and notice if the current market is sustained in coming days. And of course there is the currency which according to the experts will be somewhere between .78 and .65 by the end of the year.
Superfine Merino: A number of Chinese production mills have abandoned crossbred wool this season given the lack of demand for those products, and have instead switched to superfine merino products where they see better opportunities. The risks associated with this sort of move are large, but it is helping to drive superfine prices higher each week. On the charts there is good potential for the superfine wools to rise by another dollar or two, but like always, this is dependant on the ducks remaining in a straight line.
Medium Merino: Processors in China are making comments about the lack of demand for the medium merino business, and yet the futures market is bullish with futures prices at or above 1400 until next Easter. As we have seen last week, it doesn’t take much to light a fire under the wool market, and if there was to be a sudden jump in demand, or simply confidence the medium merino naysayers could be quickly left high and dry.
Crossbred Wool: The support level for crossbred wools appears to have held, and cold wether is obviously good for sweaters and overcoats so it may be enough to push these prices up substantially. A rise of 80 USC would put these wools back into their normal trading range and given that hand knitting yarn producers in Europe are having a good season, China will hopefully follow shortly.