Wool market slows | Elders

Wool market eases 40-50c/kg as dollar creeps up


Wool
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Higher currency exchange rates and uncertainty from customers saw the wool market ease 40-50c/kg.

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SOFTER MARKET: Merino prices around the globe took a step back during the past week.

SOFTER MARKET: Merino prices around the globe took a step back during the past week.

THE Australian wool market, and therefore Merino prices around the globe took a step back during the past week as higher currency exchange rates and uncertainty from customers came to the fore. On average Merino types eased by 40 or 50c/kg, with the low performing high mid-break lots being more severely discounted, but even the better style lots showed an easier tendency temporarily.

Skirting wools destined for the knitwear trade eased, but not by as much as their fleece counterparts. Carding wools bucked the trend and gained a few cents. Crossbred wools, which had in recent weeks been dragged upward by the demand for blending with broad Merino also eased by 20-30c. Overall the AWEX eastern market indicator fell by 31c to 1525c in local currency terms, or US23c and Euro16c.

AWEX’s northern market indicator fell 38c to 1590c. The 17 micron indicator closed on 2207c, 18 micron 2078c, 19 micron 1775c, 20 micron 1595c, 21 micron 1547c, 22 micron 1473c, 28 micron 816c, and 30 micron 601c.

Currency played a part in the lower market this week, but was not solely to blame as the prices still fell in US dollar and Euro, but it can be attributed to perhaps half of the movement. Late last week the Australian dollar hit a high of US81.24c on the back of a much weaker US dollar, and this no doubt spooked the wool trade enough to curtail business over the weekend and into the early stages of this week, especially when some currency outlook papers began to publish updated forecasts with the Australian dollar heading to US90c by the end of H1 2018.

There are updated forecasts with the Australian dollar heading to US90c. - Bruce McLeish

This optimistic outlook may well come to pass, but it is built around the premise RBA interest rate hikes here in Australia, as well as continued US dollar weakness and commodity prices remaining strong. Currency speculators have already gone incredibly short on the US dollar over recent months, and like all livestock herds, when one changes direction the bulk will follow. So predicting where the currency will be in nine months time is less than an exact science, and over the past 12 months it has not worried the wool market all that much anyway.

Demand from traders, processors, and final consumers is much more pertinent to the growers of Australian wool, and other countries that inevitably follow the price lead set by the Australian market. After a very solid performance in June through August, where we often see the market switch off, the wool market has paused for reflection, and now waits for the proverbial jump-start. It will not sit and wait for long however, with the annual exporter/trader/processor gathering in China for the Nanjing Wool Market Conference taking place this weekend. This event has shown in the past to be capable of creating a short-term spike in the market, and given the lack of stock currently in China, it would be fair to assume that a reasonable volume will be traded over the coming few days. There has also been an increased activity by spinners following the recent Spin Expo held in Shanghai at the end of August, and this is creating demand for wooltop that needs to be made quickly. Processing activity in China, which has been dominated for the past two months by fake fur production is now returning to more normal worsted and woollen activity.

It is still relatively early in the season for these products, given that the focus of most manufacturers is now on producing garments for the 2018-19 collections, so there is yet to be a full scale ordering of raw material. Most spinners are still reluctant to order beyond what sample and trial quantities they have on hand. However, virtually every spinner in Western Europe is fully booked until the end of the year. Some have their raw material covered, but a large number are still hesitating as the wool market bounces around trying to find a level. If the stars align and the European fraternity hit the button at the same time as the Chinese begin buying in earnest it could result in another significant spike in prices. Hopefully things remain more measured and we do not see a period of frantic buying to push the market up a couple of dollars in a fortnight – as we know the inevitable outcome – but a more measured and steady approach as buyers continually gather raw material.

Looking forward the picture for the wool market appears quite solid, apart from concerns about Washington, Pyongyang and the world economic scene. Another factor that will be important for us is the forthcoming National Congress of China’s Congress Party that takes place on October 18 this year. Every five years the party meets to decide on the make up of the leadership of the communist party and while it is fairly certain that Xi Jinping will remain in the top job for a second five year term as is convention, jostling for minor positions, and future transition is already taking place. This could impact the wool industry in a number of ways from customs controls, environmental issues to banking restrictions. Already stretched finances for traders and processors, given the relatively high wool prices may come under pressure the closer we get to the end of the year, when traditionally balance sheets need to be zeroed out.

Never a dull moment in the wool industry!

- Bruce McLeish is Elders northern wool manager.

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