THE wool market bounced back from last week’s correction with a subdued rise of 10c. Subdued no doubt by the surging Australian dollar, which has had a rocket under it after very good trade surplus numbers, and a generally weaker US currency leading to an exchange rate of US76.5c on Thursday and very nearly breaking the US77c barrier on Thursday night after auctions had closed.
In US dollar terms the wool market rose by 22c, and also 15 Euro cents. The superfine wools continue to lead the way with strong rises over most categories due to the limited selection of good style wools available. Medium Merino types were generally firm although the broadest microns appeared to struggle somewhat with very large quantities available.
Good knitwear demand from Europe in particular saw the skirtings and prem fleece sell very well, posting gains of 30c or more. Cardings were mixed but generally positive while the crossbred end of the clip continues to languish and losses increased in line with micron.
Mills in Europe were and still are keen to purchase the final requirements for the processing season as quickly as possible. There is very little stock available in Europe and machine washable tops for knitwear are in strong demand. These tops are typically 58-60mm in length and produced from Pieces, lambs and prem fleece. Some mills are finding it difficult to source enough prompt wooltop and so are turning to longer fleece tops which are slightly easier to find and cutting them to the required length in order to make the knitwear yarns.
Price discussions are taking a little longer this week than previously, but eventually the spinner of knitter must make the purchasing decision they have been resisting for so long. The processing season in Europe is in full swing and many more factory hours are involved to create a pure wool garment than for those using some of the inferior man-made plastic fibres. Time is running out for European mills to purchase greasy wool in Australia and still get it through the processing chain into garment by the end of July, which is providing a sense of urgency in the present market for those who have held back.
In China, and indeed most of Asia all has been relatively quite with the celebration of the Lunar New Year. The year of the Rooster is being celebrated in China and all processing mills have been closed for the past week. Some will reopen shortly, while others will make it a two or three week annual holiday for their staff.
Some wool trading activity still took place in China this week, perhaps as a result of traders trying to stay one step ahead of their customers, or making sure that they have stock available to sell when their customers return to work in coming days. This activity combined with the European demand obviously helped generate a positive result for the wool market in Australia and bodes well for coming weeks – with one large caveat.
US president Donald Trump is generating a lot of discussion and certainly a fair degree of consternation about the future direction or policies around world trade. Coupled with Brexit, which has been decided but still has a long way to go, there is a large degree of angst about possible protectionist policies being introduced. We have seen in recent times quick decisions made about implementing new policies, and for a mill with large value shipments in the production process, nowhere near being shipped or paid for, the sudden implementation of a new tariff somewhere in the world is a worry. We may see it all blow over and trade continue more or less as it does today, but the uncertainty of not knowing is creating some angst, and may yet be a factor on the demand side of the equation.
The other factor for growers, processors and retailers to keep in mind is the currency. Recent trade surplus results and increasing commodity values have pushed the Australian dollar much higher than the perceived fair value figure of US65c to US70c against the US dollar. In recent months the wool market has largely ignored the currency, but historically prices in both currencies tend to merge again at some point. This could mean that a rising Australian dollar will see prices in local terms ease while holding, or even rising in US dollar terms if the Aussie dollar continues to climb.
A traditional increase in superfine wool during the month of February will test the resolve of the superfine market, that on the charts are approaching resistance levels. The medium Merino wool supply has increased substantially in January, but providing there is not too much more increase yet to come, price resistance at the finer end may actually support these wools as mills look to push the micron a little more in their products.
The recent Pitti Filati yarn exhibition for spring/summer 2018 was held in Florence, Italy. Customer numbers were down on recent fairs, and the mood was not particularly upbeat. Whilst this exhibition was for the Spring/Summer collection, and thus less important for wool, the lack of enthusiasm is a further note of caution for those still holding wool, or for those considering forward selling.
- Bruce McLeish is Elders northern wool manager.