Wool continues in sellers’ favour | Elders

Wool strong despite signs of 'topping out'


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MARKET STRENGTH: The wool market continued in sellers' favour despite showing some signs of topping out later in the week.

MARKET STRENGTH: The wool market continued in sellers' favour despite showing some signs of topping out later in the week.

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The wool market continued in sellers' favour despite showing some signs of topping out later in the week.

Aa

ANOTHER good week for sellers of wool in Australia, although the market did show some signs of topping out last week as it was unable to sustain the momentum even though the currency eased favourably overnight on Wednesday.

So in the final wash-up the market finished the week 15c higher. Superfine Merino types continued their very strong performance of recent weeks with further gains of between 40 and 60c for the week.

Medium Merino fleece types are struggling to keep up with their finer cousins at present and closed more or less unchanged over the three selling days. Knitwear types, pieces, bellies and prem-shorn wools found good support, as did the carding sector which rose by 10c to 20c.

Crossbred wool, at least the finer end of it anyway, is beginning to climb off the canvas and the 28 and 30 micron types managed small but consistent gains each day.

The general feeling in the market overseas is that prices are ‘high enough’. Obviously most of the buying activity is being driven at present by topmakers and the need to stock up before the recess. There is some demand coming out the other end of the pipeline in the form of final garment orders but not enough at this stage to sustain the market for much longer.

Nobody would be prepared to gamble and take a position to anticipate the current market falling in the short term, as there is simply not enough greasy or wooltop stock around the world for this to happen. However, in the Chinese market the important Type 55 (21-micron) has reached the psychological barrier of US$11/kg again. A month or so back it reached this level, and then eased, so traders in China are nervous about whether this represents a ceiling level again, hence their reluctance to continue pushing the medium merino types on Thursday.

Superfine wools are riding a wave of momentum and the limited demand in China at present is for garments made from 19.5-micron Merino or finer types. The fur-like product that has been all the rage this year from a processing point of view, is beginning to sell quite well as the weather cools down. Adding to this demand has been some significant knitwear orders from the likes of Uniglo for their annual winter collection. While some of these retailers have reduced the volume of their purchases due to the current price levels, others are taking a punt on consumers becoming educated about the benefits of wool and being prepare to pay more for the garments made from Merino.

In a positive development for the long-term price trend of wool the major competing fibres are all heading north. Cotton futures prices are increasing and interestingly managed funds are beginning to invest in the market. Obviously they see a moneymaking opportunity for their clients and are taking stock positions in the futures market in anticipation of rising cotton prices over the next few months.

Synthetic alternatives have been ridiculously cheap for several years now as a result of over supply of oil, excess production capacity and a post GFC hangover. The major producers of these fibres, and there are only a few big producers around the world, are beginning to ratchet up the margins on their products from zero to a more meaningful level. Added to this is the recently announced OPEC

production cut for crude oil, and the sudden increase in the oil price of 10 per cent. This will flow through to the price of synthetic fibres and no doubt the large producers will take advantage by cribbing a few more points onto their margins, that have been so low for a long period. Woolgrowers will benefit from a rising cotton and synthetic fibre price trend, as it will mean a little bit less pressure when buyers compare the options for a garment that they intend to sell at retail.

However, wool will stay well above the long term average price comparison as it moves further towards niche or elite-fibre status, but the conversation is much easier to have with a buyer when the price of cotton and polyester are also rising. One side effect of the increasing synthetic fibre price rise will undoubtedly be an increase in the price of nylon and the wool packs used by growers. Already the raw material price is beginning to trend upwards for this particular product.

Of course the wool producers, processors and retailers still need a robust, viable economic environment to keep consumer activity strong in order to sell their products. In some cases this is happening, while in other areas there is still cause for concern. The OECD said on Monday that global growth will pick up faster than previously expected as the Trump administration’s planned tax cuts and infrastructure fire up the US economy. They failed to detail where the funds would be coming from given that taxes will be cut.

Conversely they pointed out that the stalling recovery would be the greatest threat to the Eurozone’s economy and urged the European Central Bank to continue to support growth, and extend its bond buying program – meaning print more money.

Superfine: There are not too many complaints from superfine growers at present given that 17-18-micron wool is selling in the 90th percentile area over the past five years and it is probably the segment with the strongest demand at present.

Medium Merino: Even though demand is a bit sluggish in the current market, the futures market remains remarkably optimistic about the medium Merino sector with prices hovering around the 1400c mark through until Easter 2017.

Crossbreds: If we have truly reached the bottom, prices should start to rise in coming months.

Bruce McLeish is Elders northern wool manager.

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