Wool delivers major recovery | Elders

Rebound: Wool delivers major recovery


The wool market has rebounded with AWEX's eastern market indicator gaining to 53c to close on an impressive 1512c.

SYDNEY SALES: The wool market bounced back this week with the eastern market indiactor gaining 53c to close on 1512c.

SYDNEY SALES: The wool market bounced back this week with the eastern market indiactor gaining 53c to close on 1512c.

A WEEK before the Easter recess and the market performance was almost biblical in its recovery. A lower Australian dollar certainly helped the cause, but from the initial lots being offered on Tuesday it was clear that the correction was well and truly over. 

Buyers are still being selective in their buying and discounting poorer quality lots as current volumes allow them to be – and this makes good commercial sense, and as mentioned last week it sends a ‘correct’ market signal to growers. The EMI closed on 1512c, up 53c for the week. While in US dollar terms the rise was slightly more muted at a 33c increase. European buyers saw a slightly lower increase than the Australian prices for their purchasing requirements with a Euro34c rise.

Medium Merino types such as the 21-micron type, which had fallen outside of its medium term range of between 1400c and 1500c bounced back strongly, and the 21-MPG now sits just on top of the range at 1507c. Superfine Merino rose by slightly less than the medium Merino segment as the market seeks to restore a more reasonable basis for these types than the previous extreme levels. 

AWEX’s northern market indicator closed on 1608c, up 59c. The 17 micron indicator closed on 2317c, 18 micron 2173c, 19 micron 1895c, 20 micron 1608c, 21 micron 1507c, 22 micron 1405c, 28 micron 735c, and 30 micron 584c.

As previously mentioned huge increases in price for less than a micron difference creates difficulties for the processing sector. When the normal industry tolerance of 0.3-micron is worth in excess of a dollar per kilo naturally suppliers seek to push the limits, and customers tighten their parameters, or indeed look to buy a slightly coarser type to save money. This inevitably has the effect of flattening the basis over time to lessen extreme price differences. 

Skirting types in general followed their fleece counterparts higher during the week, although if anything the discounts for VM, colour and cot were more significant in this sector of the market – which makes perfect sense given the difficulty in processing seedy jowls and the like. Carding wools, after a significant pull back last week had mixed results and appear to have peaked for now. This is not surprising from a calendar sense because demand for the carding market usually peaks in February or March, but the demand for double-faced fabric in China is still quite strong, so perhaps there will be one more upward surge in the carding market yet this season. Crossbred wools steadied somewhat, with the finer edge increasing slightly, but overall they still face the issue of too much stock in the pipeline to enable a full-blown recovery yet.

Meanwhile the outlook for good quality merino wool of all micron categories looks very promising for the longer term. Low stocks in the pipeline and the normal seasonal supply winding down will keep steady pressure on prices for the coming weeks. However the jump in prices this week was probably more than most were expecting, especially in the medium merino categories. This does not necessarily mean we will see another correction, but more likely some minor adjustments to settle things down. The fact that some types in Fremantle closed at levels slightly below the east, albeit on a strong note, is a sign that prices need to be recalibrated across the nation. 

No doubt the wool market will continue to be one of the most volatile commodities on the planet. With a one-week recess now in play buyers, traders and processors will no doubt be fine tuning requirements and testing the market at these new/same-again levels where we now find ourselves. A key question being thrown around the trading desks over the Easter recess will be whether we have again reached the ceiling again for 21-micron. The market has been unable to sustain momentum over 1500c for more than a week or two since 2011, and it was way back in 1988 when it enjoyed a reasonable length of time above this level – unfortunately the aftermath of that period was not pretty. 

In US dollar terms, and arguably the wool market is taking more notice of international pricing than domestic pricing these days, the 21-MPG sits around US1130c/kg. Again this is within 20c of a resistance level that has held for the past three years. However, it did spend a fair amount of time above this level between 2011 and 2013, so while there is some discussion about current high prices for wool, they are not historically extreme in US dollar terms for anyone who has been in the game for a while.

All this simply means that some customers of Australian wool are comfortable, whilst others are feeling distinctly off-colour with current levels. Their degree of satisfaction depends, to a large degree what sort of products they are making, and how innovative they can become. Even some of the world’s best innovators however, the master technicians in Prato, Italy, are struggling to maintain business at current levels with many looking to alternative fibres or regenerated wool. For them, over a relatively short period of time wool has moved from a commodity into a niche fibre. Cashmere has long been a staple of the Pratese however, and the volatility of that niche fibre poses some problems but nothing that is insurmountable.

Perhaps a bigger concern will be the antics of some of the world’s leaders at present and how they interact over coming weeks/months. Hopefully common sense will prevail and our industry can continue to clothe the most discerning consumers with one of the best fibres in the modern world.

- Bruce McLeish is Elders northern wool manager.


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