THE Australian wool market continues to perform exceptionally well, although this week saw further disparity emerge in different sections of the market.
As has often been stated, AWEX’s eastern market indicator is a basket indicator and does not always provide a true picture of the market. This week provides another such example with the EMI registering a relatively insignificant 2c rise (closing on 1568c). However the superfine sector has risen by up to 50c, while the medium Merino fleece types eased by 30c to 40c.
Continuing with the disparity theme and we saw crossbred wools take a hit of up to 30c, but the carding sector, which has actually grown in importance in recent years rather than just being a by-product or out-sorts, and this week saw the carding indicator climb by nearly 30c.
So people looking at the market from the outside might either think is was relatively unchanged as per the EMI, or the market is tearing it self apart by going in different directions. However, all of the individual movements are relatively easily explained with a bit of information from downstream activity.
The medium Merino sector is still troubled by a lack of feedback from retail.
Superfine Merino usually performs well in a designated superfine sale as we had this week, where we are selling the cream of the crop. Buyers are keen to get their share of these wools, as they know that they are relatively seasonal and if they want them, they must buy them now.
Stocks overseas of superfine are low and nobody wants to get left behind trying to chase this end of the market in particular. The medium Merino sector is still troubled by a lack of feedback from retail, and some price resistance at this stage of the season.
Cheaper alternatives are being used where possible, and blends are being adjusted as well which ultimately means that demand is a bit lacklustre, not falling, but not as enthusiastic as for the superfine area.
The maligned crossbred sector fell again this week, as volume demand is difficult to find. There are some processors adding crossbred wool into their acrylic yarns for sweater production and the like, simply to slot into a more favourable duty category. However, this is usually only 15 per cent wool so does not create any volume demand.
AWEX’s northern market indicator closed up 1c on 1657c. The 17 micron indicator closed on 2338c, 18 micron 2161c, 19 micron 1885c, 20 micron 1657c, 21 miron 1553c, 22 micron 1476c, 28 micron 726c, and 30 micron 521c.
The temporary upturn in prices we saw back in August was on the back of fake fur demand, but conditions are basically not cold enough yet in China to have consumers buying enough of these garments to call it a success, and create new demand.
The price basis to Merino fleece is now reaching the attractive level and processors will start to get creative and find a use for these wools. It would be safe to assume that an upturn in price for crossbred wool is not that far away. Kiwi growers will certainly see one next week in local currency terms at least with their currency being absolutely hammered after the news broke about the new government over there this week.
Carding wools in recent years have often been described as ‘leading’ the market, and it has seemed at times to be true. There is a dedicated section of the wool industry that processes only these short wools, and the garments that they create are in strong demand.
From knitwear to double faced fabrics the mood is quite buoyant, and of course supply is restricted. We have quite a way to go in the usual processing season for carding wools, with demand usually increasing through until a seasonal peak in February/March, so it does look good for the whole wool industry if they are going to continue getting stronger until then. So all the fundamentals are clear, and the market is performing as expected, and provided it continues to rain growers should be happy.
A meeting in China this week could have a significant impact on the wool industry given the importance of that market, not just as a buyer and processor, but also more and more as a consumer of Australian wool. This week the 19th National congress of the Chinese Communist Party kicked off. The president and party chief, Xi Jinping opened the weeklong congress on Wednesday with the traditional report card on the past five years, and his vision for the next five years. His report outlines China’s policy direction in all major fields until the next congress, or even longer.
One of the key points to come out of his reports was that the communist party wants a ‘Beautiful China’ and he pledged to build this with a clean environment, high tech companies and responsive government.
The wool industry is probably ahead of the curve in terms of environmental issues such as wastewater treatment compared to many other industries, but there will no doubt be a renewed focus on this sort of thing in the future. It will play well into the strength of wool’s environmental credentials however, and no doubt President Xi was wearing a superfine Merino suit while addressing the congress.