Wool market hits 1434c record high | Elders

Wool market hits 1434c record high


Wool
MARKET STRENGTH: The Australian wool market closed on a record high of 1434c, despite easing as the week progressed.

MARKET STRENGTH: The Australian wool market closed on a record high of 1434c, despite easing as the week progressed.

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The Australian wool market closed on a record high of 1434c, despite easing as the week progressed.

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THE Australian wool market tried to maintain its momentum last week, but eased as the week progressed. Overall the market indicator showed a gain of 12c in local currency terms to close at a record high of 1434c, and added a further 17c in US terms as well.

Tuesday saw Melbourne open strongly with superfine types adding another 40-50c, while the broader micron ranges struggled to maintain levels of the previous week. A similar story played out on Wednesday across the nation with superfine types showing the way, while medium Merino wools and crossbreds eased slightly.

On the final day of selling the pattern was further entrenched and Fremantle in particular saw the medium Merino types move into full-blown correction mode, whilst a small selection of superfine wools remained in a positive trend. Fremantle’s last hour or two of selling often portends the tone for the following week, and with many Chinese travelling back to their home towns for New Year celebrations, many will take the opportunity to sit back and reassess what orders they actually need to place in the market, so a softer outlook for next week is likely.

AWEX’s northern wool indicator closed up 16c on 1506c. The 17 micron indicator closed on 1931c, 18 micron 1761c, 19 micron 1583c, 20 micron 1478c, 21 micron 1426c, 28 micron 665c, and 30 micron 575c.

The resilience of the market in US dollar terms is quite remarkable given the ongoing strength of the US dollar in recent months. On the charts the 21 micron indicator has baulked again before it reached the resistance level of US1150c and it will need to gather a major head of steam if it is to breach this level, which has been in place since late 2013.

On the Australian dollar charts a similar picture is emerging although with a shorter time period for the key level of 1500c for 21 micron. Given that the futures market has been providing bids around 1440c into autumn and 1350c into the spring there is confidence that the market will not fall too far, but will also find it difficult to break through this resistance level.

The superfine charts show an entirely different picture with plenty of blue sky for 17 and 18 micron categories in either currency suggesting the already ‘normal’ basis could widen even further. This obviously depends on continued demand coming forward, and as the crossbred category indicates, if there is no demand, even though prices seem cheap, the market may struggle.

Mills overseas have returned to very much to hand to mouth operations in response to surging prices over the past two weeks. Where they have an order they are willing, or forced to purchase for immediate delivery, but only the brave (or perhaps astute) are booking forward. Much of the drive for superfine wools now comes from China and other Asian countries with the European buyers perhaps filled or been priced out of the market. Broader Merino wools, above 21 micron are seen as relatively good value by some and quite a bit of quantity is being booked further forward, although there is also a noticeable increase in the volume of synthetic fibre being added to blends as well.

In positive signs for demand the economic news from around the world is pretty good at present. In the US growth continues to improve slowly and steadily and the Federal Reserve is hinting they will raise interest rates again soon, and more often in 2017 to prevent their economy from overheating. The outlook for commodities in 2017 is being reported more and more positively which may keep the Australian dollar from falling too much, but will also assist by pushing up the prices of alternative fibres such as polyester and cotton.

No doubt there will be some market reaction from the Inauguration and follow up Tweets of Mr Trump, hopefully things will settle down again quickly. China, so important to the wool industry for the last 20 years as a processor firstly, but now as a consumer, is still struggling to reform their economy. Although a massive task, given the size of their economy and population, progress is frustratingly slow. State Owned Enterprises are being reformed, but as they employ so many people, they cannot simply be closed or privatised overnight. The housing market, a source for so much construction activity is, like in Australia, too focussed on big cities, and difficult to regionalise without using a big economic hammer. In the meantime money is flowing out of the country at a rapid rate and so the boffins in Beijing will no doubt have some serious policy discussions in their upcoming plenary sessions.

Superfine: Not since 2011 has the outlook for superfine merino appeared quite this good. Back then the wool market rose in concert with all other major apparel fibres. This time it has been more of a solo effort, until now. If the other fibres do get a wriggle on in the short term, we could see a very good picture indeed for superfine Merino.

Medium Merino: Although it is pretty hard to rationalise oversupply given the size of the current Australian sheep flock, there is not a shortage of medium merino wool at the minute. It would not take a huge increase in demand to change the situation significantly, which is why the futures market is still paying good prices for the next 12 months. Worst-case scenario might be that prices maintain the current range of between 1450c and 1500c/kg for 21 micron – a situation that most growers would be pretty happy with.

Crossbreds: An increase in bidding on the futures market perhaps indicates the bottom has been reached, but most people thought that a couple of months ago. The sheer volume of stock in the pipeline in China for this type of wool means that it will probably take 6 months or so to clear.

Bruce McLeish is Elders northern wool manager. 

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