AWEX’s eastern market indicator started the week 18c higher after AWEX revised the contents of their ‘basket’ indicator to more accurately line up with the current woolclip. From its new level the eastern market indicator (EMI) changed only marginally to 1524c, with a loss of 1c for the week, which was actually a healthy, positive result given the 50,000 bales on offer.
AWEX’s north market indicator closed down 6c on 1593c. The 17 micron indicator closed on 2161c, 18 micron 2118c, 19 micron 1845c, 20 micron 1618c, 21 micron 1529c, 22 micron 1462c, 28 micron 759c, and 30 micron 549c.
In US dollar terms the market eased by 9c on the back of currency movements, but no doubt provided some respite to those mills struggling with current price levels in this processing off-season. With the large volume of wool put before them buyers were able to be selective with their limits and the discounts applied reflected the true processing costs once more.
Well-grown Merino fleece with high vegetable matter (VM) still sold quite well as the underlying fibre results of length and strength allowed the processors to remove the offending vegetable matter quite easily. Knitwear types were in strong demand with some of the few downstream orders available requiring these inputs.
Carding wools drifted lower as the seasonal demand waned further and crossbred wools didn’t change a whole lot, with the finer edge gaining a few pennies, whilst the coarser ones eased.
With only one sale to go before a three-week recess buyers and processors are only stocking those types they expect to be able to more easily sell in forthcoming weeks, so the medium Merino fleece, knitwear types and short fleece of all microns all sold well.
Exporters will be looking to wrap up existing orders next week and finish the buying season with a net position, or whole containers in stock to sell over the break should there be a dip in the currency. The forward market is trading quite well and there are already some sales taking place well into 2018 at reasonable prices. The market appears destined to finish the selling season well above 1500c – on both the EMI and the 21-MPG.
However the story of the year has undoubtedly been the rise of superfine Merino. The 17-MPG is some 600c above the level at the same time last year and the 19-MPG is also up by 300c. Although the early predictions point to a slight increase in fine wool supply for next season, given the low stocks in the pipeline and moderate demand the 2017-18 season should see most of the current basis maintained.
Buying activity overseas in the past week has been extremely quiet in Europe and subdued in Asia. With most mills throughout Europe now only a couple of weeks away from their annual summer holiday shutdown, or in some cases already closed, the amount of prompt enquiry has slowed to a standstill.
The bulk of the Asian mills are also slowing down, but not stopping for holidays, but it is only a few that are looking ahead to the third and fourth quarters to lock in their requirements. Traditionally prices for greasy wool, and therefore wooltops ease by as much as 10 per cent in August as supply comes back onto the market again from Australia and South Africa.
Grower resistance to this sort of drop will be high no doubt this year, and this factor alone should mitigate any large adjustment in prices. So those spinning mills around the world that are actively buying at present may well be the smart ones this year. Some would call it gambling, but others have a much more calculated, analytical approach to their business.
As everyone is well aware the wool market strength is very dependant on confidence, and whilst there is plenty of media hype at present surrounding the tweeting contest between Trump and Kim Jong-un, and the protestors at the G-20 meeting - many of whom do not seem to know what they are actually protesting about, other indicators are trending positive.
So much attention of late has been directed to the US economy that China, the world’s second largest economy, has barely rated a mention in the daily economic press. In fact it is doing well and still gathering speed, although some individuals in China are less convinced, depending on which sector they actually operate in. The official headline figures in China are often taken ‘with a grain of salt’ as they tend to reflect the operations of the large state owned enterprise activities, and sometimes do not reflect reality in daily life in China.
Major initiatives like the New Silk Road project tend to pump up activity levels, with the latest Chinese PMI data coming in at 51.7, beating forecasts of 51, and it’s up from 51.2 in May. The alternative measure of purchasing manager’s intentions in China is the Caixin Services PMI, which tends to focus on smaller private companies, while the official data tends to focus on the larger state owned operations.
The Caixin Services PMI weakened ever so slightly in June, but still recorded an expansionary reading of 51.6, after May’s four month high of 52.8. Anecdotal reports still indicate some sectors doing well; with others indicating subdued new orders and difficulties gaining securing loans for business expansion. On average the readings are both positive and show that Chinese government policies, despite some outside criticism, are keeping the ship afloat.
Early stage processors in China are not in one of the ‘favoured’ sectors these days, and banks are certainly reluctant to increase finance levels, but over-capacity is still the biggest challenge for them rather than the actual demand side of the equation. Some of the top-making mills, which have ceased principal trading, are still operating on a commission basis, thus maintaining an oversupply of early stage processing capacity. Coupled with a switch to Merino by some of the crossbred mills, and the bearish mood of some is understandable. The big picture looks better, and providing these mills do not build up excessive stocks in the next four weeks the new season should be outstanding.
