THE wool market seemed to struggle against opposing forces last week, with some participants calling for further correction, while others were keen to secure supply and content to push prices higher.
Despite a reasonably large offering of just under 50,000 bales the looming Christmas recess and the gap in supply won the argument and prices closed higher at stumps.
The AWEX basket indicator rose by 7c to 1676c across the week, but thanks to a weaker Australian dollar only gained US1c and lost a couple of Euro cents. Melbourne is providing more than half of the weekly national quantity at present and running three day sales, whereas Sydney and Fremantle can only muster enough volume for a two-day selling week.
AWEX’s northern market indicator closed steady on 1756c. The 17 micron indicator closed on 2459c, 18 micron 2270c, 19 micron 1999c, 20 micron 1773c, 21 micron 1649c, 22 micorn 1569c, 28 micron 718c, and 30 micron 534c.
On Tuesday the market spluttered and it looked like further corrections were taking place with prices across the micron spectrum easing in a slow measured fashion. By Wednesday, however, buyers had had enough sitting on their hands and re-entered the fray chasing in particular the better spec wools in the Sydney catalogue, which was again a designated superfine sale. To close out the week on Thursday the buying trade remained active, with Chinese demand the driving force.
The collective view from China is much more optimistic and they are buying with almost gay abandon.
So at the end of the week there seemed to be an overwhelming mood of optimism coming from China, in contrast to the mixed views from only seven days ago. Last week there were plenty of buyers and processors in China putting their hand up to say that the correction had further to run as current prices were still too high, cash was running short, the end of the year was approaching and a myriad of other excuses.
Within a very short amount of time it seems that many people have jumped the fence and now the collective view from China is much more optimistic and they are buying with almost gay abandon. Other key markets such as Europe and India still remain cautious or reluctant to see higher prices at this point.
Perhaps some of the European voices are trying to ‘talk’ the market down or restore their position of leadership within the industry, as the processing activity currently taking place in Europe does not reflect price pressure or a slow-down.
The Indian trade, which is steadily growing as a consumer of Merino thanks to some very successful marketing campaigns linking Bollywood stars to Merino garments is struggling to keep up with the current market movements however. Often their price ideas or bids seem to be a week or more behind the current price level, which in the case of superfine Merino can be nearly $1 below.
As summer begins down under with test cricket on the radio but most of southern Australia experiencing unseasonal wet conditions courtesy of La Nina it is difficult to find too many pessimists in the wool trade. With only two selling weeks remaining for the calendar year and product moving freely in China at least most participants are lining up on the side of firm to stronger prices.
The wool market has often surprised us in the past, and if we do encounter a speed bump it will upset a lot of people. To date there has been very little chatter about wool quota running low in the Chinese market, with the exception of a few trying to use their NZ quota up, which has unfortunately not been in high demand this season.
Cash flow must be an issue for lots of people in the trade this year, with exporters, traders and processors needing simply 21 per cent more cash to fund the same turnover compared to last year. With careful juggling and keeping overdue payments to a minimum no major problems have been encountered to date. The dwindling grower held stocks are another reason that buyers are reluctant to stop buying at present.
The just released AWTA stats for November indicate that we have produce 5pc more wool season to date compared to last year, yet AWEX figures show that we have sold 9pc more than last season. This confirms that we are selling more than we are producing and that we will not see a big influx of wool coming to the market in the New Year. Add to this the disproportionate increase in crossbred wools in the AWTA increase and merino wool may become quite scarce in 2018.
Retailers on the whole seem quite satisfied with last week’s Black Friday sales which augers well for the Christmas season around the globe. The Australian Dollar seems to be “comfortably” declining at present, and given the stagnant outlook locally compared to other global economies it would be safe to assume lower values in coming months.
If President Trump is able to get his tax measures through Congress the US recovery will gather further steam leading to more interest rate hikes over there. This weakening local currency situation will allow wool prices to increase in Australian dollar terms while not putting too much pressure on global customers.