A WEEK is a long time in the wool industry. Volatility around the world, particularly in Washington DC is making people nervous, demand for wool is drifting lower, in part because of nerves and in part due to seasonality.
However, a relatively small offering of only 35,000 bales meant that the Australian wool market didn’t change a whole lot over the course of the week. AWEX’s overall eastern market indicator slid by 12c to 1522c, but conversely rose by 8c in US dollar terms.
Superfine Merino types moved in accordance with the style of lots offered, with the few best style lots coming out of the cupboard rising in price, whereas the less quality lots on offer decreased by 20c or so.
Medium Merino types continued to meander about looking for a firmer footing, which is probably now within reach given that the 21-MPG is back under the 1500c ceiling where it previously looked uncomfortable.
Crossbred wools continue to drift along, but across the ditch in NZ prices were quite strong as demand firmed, so all things being equal, we should have seen the bottom for these types.
Prices in the carding sector moved sideways, which for the middle of May is actually a good result given that seasonal demand is normally expiring by now.
AWEX’s north market indicator closed down 3c on 1612c. The 17 micron indicator closed on 2354c, 18 micron 2219c, 19 micron 1942c, 20 micron 1628c, 21 micron 1499c, 22 micron 1441c, 29 micron 763c, and 30 micron 570c.
Last week it was mentioned that the CBOE Volatility Index or VIX had fallen to its lowest level in more than 20 years. That didn’t last long however, with the ruckus in the White House causing a bit of angst and consequently the VIX shot up from 10.5 per cent to 15.5pc.
This culminated in a sell-off of equities and risk-off strategies by traders around the world, which saw them jump back into safe haven areas such as the Japanese yen. Interestingly the Australian dollar did not suffer in the move away from commodity currencies, as is often the case in this herd mentality movement. Perhaps an indication that it will be reversed shortly and calm restored?
The reasoning behind the movement was generally explained as the perception that due to the current turmoil in the Oval Office, President Trump’s much heralded tax cuts and infrastructure spending may be pushed back further, as might the next interest rate rise in the US. All this may blow over shortly – or indeed it may blow up. Nevertheless it is creating some anxiety in what was, only a week ago a calm and predictable world economic scene.
Whether this particular issue is the cause or not, there is also a degree of uncertainty around wool market circles this week. In general traders and processors are worried about the level of demand they are, or are not seeing at present. If lack of supply is holding this market, and given the outlook for receivals into store recently supply may get even tighter, should they – the processor - continue to purchase, and produce to stock, or reduce capacity. Reducing capacity, even when a lack of orders encourage it, is not an easy process these days in modern China with labour laws and financial commitments. So, the early stage processors are watching each other closely, and pouncing on any enquiry that comes along.
Despite this there are a number of spinners in different parts of the world who are still actively buying raw material, either because they have new orders, or because they have been waiting until the last minute to purchase. Traders or processors who have the correct type of raw material in stock for prompt delivery are being paid for their cost of storage, and to some degree the risk they take by holding such stock. Risk is not palatable for many businesses, and those with a low threshold for risk will be the ones most concerned at this point in time.
Some of these early stage processors will no doubt turn to Chinese domestic wool or even crossbreds from Australia and New Zealand as a way to keep processing machines busy, with less capital requirements and also less market risk. Cash in China, at least in the wool processing fraternity is reported to be quite tight and this may drive some of the purchasing decisions over coming weeks. This current situation may in fact be good for crossbred wool, with some early signs of better demand for these wools in recent days. If the prices for crossbred continue to improve, those that have recently purchased and processed them will feel vindicated and profitable, therefore turning the wheel further, which could lead to a recovery in prices for these long forgotten types. Never a dull moment in the wool market.
Superfine: Where did they find them, was a comment around the auction rooms this week as some very stylish, out of season superfine wools appeared on the show floor. Traditional buyers jumped at the chance to secure some more quantity of their preferred raw material and prices rose accordingly. Lots with less stylish results were priced accordingly and the market will continue to be selective when it comes to the finer end of the clip, with a very keen eye on the weather patterns.
Medium Merino: The 21-MPG is now comfortably within its trading range, and given that 21-micron futures traded for the spring at better than 1400c it would be safe to assume the floor of 1400 will hold until then – barring any unforseen disaster in world economics.
Crossbreds: Perhaps, just perhaps, we are seeing the start of a revival in prices for crossbred wools. Low supply in coming months will help sustain the push, but we will definitely need to see increased demand in place before the spring flush occurs if it is to be maintained.
