Stronger wool market hits 1550c | Elders

Stronger wool market hits 1550c


PRICES RISE: All Merino fleece types recorded strong gains, generally in the range of 30-60c at sales this week.

PRICES RISE: All Merino fleece types recorded strong gains, generally in the range of 30-60c at sales this week.

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All Merino fleece types recorded strong gains, generally in the range of 30-60c at sales this week.

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A VERY positive vibe was felt throughout the auction room and exporting fraternity this week despite most of China being on holiday, and the wool market reacted accordingly.

The appetite for wools ‘not quite up to scratch’ returned and the previous heavy discounts for tender and high mid break wools eased considerably. AWEX’s eastern market indicator increased by 28c to 1550c or the equivalent of US23c or Euro18c, so everyone around the globe was looking at similar percentage increases by the end of the week.

All Merino fleece types recorded strong gains, generally in the range of 30-60c as measured by the AWEX MPGs. The skirting sector mostly destined for the knitwear trade followed suit, as did the carding market, although to a slightly lesser degree. The only negative report was from the crossbred section of the market where prices continued to struggle and prices eased by 10-20c.

AWEX’s northern market indicator closed up 30c on 1629c. The 17 micron indicator closed on 2253c, 18 micron 2112c, 19 micron 1844c, 20 micron 1654c, 21 micron 1571c, 22 micron 1507c, 28 micron 788c, and 30 micron 535c.

Many had expected this week to struggle with China’s National Holiday taking place, but not everyone in China was able to enjoy the week off. It seems that the further one is from Beijing or Shanghai the less likely you are to get this week off. Mills further out were still operating as normal after a one-day celebration, but those in or around the big cities have shut down for the week.

There was new inquiry for greasy wool from China as the week progressed, and this coupled with a slightly better selection was enough to see the previously large discounts for poorer style wools greatly reduce. Whilst some combing mills are still hungry for business and offering well below current prices, others are fully booked and increasing their quotes above current market. A similar scenario exists right along the chain, and adds to the uncertainty of price direction in coming weeks.

The 21-micron futures traded well into 2018 with prices reaching 1500c for May and June. Interestingly the forward price curve is very flat from 1560c in November, to 1530 in January, and 1520c in February, which illustrates confidence but also perhaps the long desired notion of stability in pricing for wool going forward. Price trends such as this allow growers to plan ahead with confidence and also allow manufacturers and the like to make the long term plans on this basis.

However, as has often been stated, wool is a volatile commodity and this smooth path is unlikely to eventuate in reality. Currently there are a lot of discussions going on between manufacturers and their clients – wholesalers and retailers – about orders for next year.

As is the norm in October, a lot of these discussions are just preliminary chats to work out what sort of volumes and pricing may be possible. Obviously the price rise in the past 12 months is a huge bone of contention and it will be frustrating for some parties, especially when they look at the price indication on the futures market and see little opportunity for price relief in the next six months.

This will force some, in the most price sensitive areas to look at alternative blends or other ways to make the unit cost somehow closer to last year’s level. On the flip side, there is continued growth in new products using merino fibre, which do not yet face price issues

because they are new. When the products become established then inevitably copied, and those doing the copying offer a price reduction as an incentive, this is when these products will be subjected to price pressure. Until then however, the price of the raw material is a secondary issue, which is one of the reasons why our industry must keep innovating.

So we will undoubtedly bubble along through October with prices moving up and down by a similar amount as we saw this week before the market is forced to make a decision about the next 12 months. We may easily see prices moving up in local currency terms while remaining stable or easing in US dollar terms if the Australian dollar does weaken further against the US dollar as it currently seems destined to do. Supportive factors for the Aussie are few and far between at present whilst the US scenario is much better. This week the US published non manufacturing PMI (Purchasing Managers Intentions) figures not seen since August 2005, and the stock market is consistently setting new highs – then again they do have a few other issues to deal with over there.

In Europe things are mostly positive as well, unless you live in Spain. The HIS Markit composite PMI for the euro zone increased to 56.7 last month from the August level of 55.7 – it was not that long ago the world was searching for anything above 50 as a sign of positivity. So despite the argy bargy over Brexit negotiations, the odd tax issue in Ireland and of course the ruckus in Catalonia the European Central Government is finally able to start hinting about easing off the money printers. Provided nothing goes ‘bang’ in the next few weeks the wool market looks very comfortable and there is no reason to doubt the indications currently being provided by the futures market.

- Bruce McLeish is Elders’ northern wool manager.

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