Wool rises despite stronger Aust dollar | Elders

Wool rises despite stronger Aust dollar


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WOOL MARKET: AWEX’s northern market indicator closed up 3c on 1521c.

WOOL MARKET: AWEX’s northern market indicator closed up 3c on 1521c.

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AWEX’s northern market indicator closed up 3c on 1521c.

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THE stronger Australian dollar weighed on the local wool market this week. With the currency hovering just under US77c it is making wool prices more expensive for customers overseas, and the overall market rose by US16c for the past week.

In Euro terms the market was also much stronger with a rise of 21 Euro cents for the week. Australian producers saw a relatively benign movement of only plus-3c with superfine Merino continuing to lead the way. 18 micron and finer rose by as much as 30c with buyers continuing to target the better-tested lots.

Medium Merino fleece wools were relatively abundant and this caused prices to ease slightly with buyers able to pick and choose their purchases. Crossbred wools moved into positive territory again as did the carding sector.

AWEX’s northern market indicator closed up 3c on 1521c. The 17 micron indicator closed on 2089c, 18 micron 2008c, 19 micron 1789c, 20 micron 1541c, 21 micron 1436c, 22c micron 1376, 28 micron 685c, and 30 micron 543c.

Carding wools have become the first segment of the wool market to reach the same level in US dollar terms as the last peak of 2011. Most other types are still some way off, but carding wools have just reached that peak, which means that customers overseas have not paid this much for locks and crutchings in the past decade. Whether this is a peak or just a point on the graph becomes an interesting topic of discussion.

Certainly the seasonal demand for cardings is still increasing, and buyer appetites do not usually begin to wane until after Easter. However, given the current high price levels, some say extreme, there is increasing chatter about price resistance and substitution of alternative cheaper fibres taking place.

On the other hand Cashmere prices are just beginning to jump upwards as buyers and processors return after the Chinese New Year and scramble to secure available supplies. So an increasing Cashmere price may actually drag the wool price with it, if the market deems wool to belong in the elite fibre category rather than among the commodity fibres like cotton and synthetic – although these fibres are also rising slowly.

Despite the probable repositioning of Merino, not all wool, but just the best apparel fibre, a healthy expanding global economy is paramount in order to maintain the upward trend. According to a recent report by ANZ economists Tom Kenny and Giulia Lavinia Specchia a synchronised global upswing is underway. They point out that there has been a notable improvement occurring in emerging markets across Asia and also above trend momentum in all major advanced economies.

Global industrial production according to the report is currently above trend, illustrated by recent readings of PMI readings for manufacturing and services hitting fresh multi-year highs in early 2017. While Chinese trade data for January – seen as a barometer of global trade given the sheer size of the Chinese economy – is also topping expectations. It all adds to the belief according to ANZ that the global economy is on the mend after a patchy performance in recent years.

If indeed the above positive viewpoint does play out, it may help alleviate some of the fear building along the production pipeline concerning the current high price of wool. In the major wool markets of China and Europe processors are talking about the fact that fabric and garment prices are yet to catch up to the increases of raw material. While those who have been buying greasy or wooltop and selling it on to customers further along the chain are satisfied, and in most cases they have been able to extract a healthy margin, those at the end of the pipeline are less comfortable.

In many cases the fabric or garment price was fixed late last year, or at least a portion of it, and there are some difficult discussions taking place about who wears the price increase. It will not be until the new season (July onwards) that a new round of price discussions takes place again for products to be sold in the autumn/winter 2018-19 season. It is expected that many customers will then look for ways to reduce the cost of their product, either by increasing the micron, or by adding cheaper fibres in blends. This may be the trigger to reduce wool prices, or it may mean that the consumer needs to adjust their price point for garments made from the best Merino fibre.

Superfine: Buyers from Italy and China needing to secure quality superfine wool are fast running out of supply, and they can ill afford to take the foot off the pedal. This should see superfine prices continue to gain further, at least for the next two weeks before it is time for a reality check. The forward market for 19 micron shows a healthy demand as far as two years forward, although with less extreme, but still very healthy price levels being offered.

Medium Merino: The one area of the Australian wool clip that is not subject to supply constraints at present is still healthy. Prices for 21 micron will probably continue to trade in the range of between 14 and 15 dollars per kilo clean, which equates to $1700 or $1800/bale. The medium Merino still forms the backbone of the wool industry in the Chinese market, so even if the hype does come out of the superfine sector in coming months, the medium wool sector will still have plenty of followers.

Crossbreds: A brighter picture for 28-30 micron wools is beginning to emerge. The demand needs to flow along the processing pipeline in order to consolidate the trend, and clear the stock, but with less greasy wool of this type available over coming months, there is a chance that a price recovery may be underway.

- Bruce McLeish is Elders northern wool manager.

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