THE wool market was all over the place like the proverbial during the past week. Looking at the AWEX market report of the eastern market indicator movement, one could be fooled into thinking it was a benign week with only a small easing of 6c to 1812c, and even a nice little jump of US14c.
That is obviously what did happen in an overall sense for the wool market when you throw everything together from 16 to 32 micron, long - short, sound – weak, and mix in a very volatile currency market as well. Not a lot of use to many people in the industry because nobody grows ‘the lot’ nor processes every type of fibre.
The superfine and fine Merino fleece with good specifications continued to be highly sought after and competition was strong, resulting in increases of 20c or so. Those lines with poorer strength copped an absolute ‘pizzling’ (technical term in the wool trade) from the buyers who were intent on easing back from their frenetic activity of the past couple of weeks.
AWEX’s northern market indicator closed down 16c on 1893c. The 17 micron indicator closed on 2785c, 18 micron 2390c, 19 micron 2131c, 20 micron 1971c, 21 micron 1878c, 22 micron 1849c, 28 micron 793c, and 30 micron 590c.
With all of Asia celebrating Lunar New Year it was a good opportunity for them to take a step back from the market and see what the underlying strength really was. Given the poor quality selection of Merino fleece and volatility in the currency markets it was difficult to see anything clearly, so nobody is really the wiser about the foundation of the current market.
Skirting wools, with reasonable levels of VM were also strongly sought after by the knitwear trade as they look to keep product moving through the supply chain.
Garments in this sector are selling well given the current temperatures in the Northern Hemisphere, but the new price levels are yet to reach retail so it will be a challenge to have this continue.
The carding market similarly showed mixed results with prices rising in the eastern centres, but prices fell by more than half a dollar in the western selling room, confusing the outlook for coming weeks. Crossbred wools continued their slow climb off the bottom and managed small gains in both local currency and US dollar terms.
If we can ‘survive’ through to April without a major correction it will be a sign of a new price paradigm.
As the majority of the Australian wool clip is being sent offshore for processing the currency markets have always have an influence, mainly in the short term on the wool market. This week saw more than the usual volatility, which is sure to make the buyers and exporters a little more nervous.
Most of the buying activity generally takes place later in the week, after the auction has been completed, or at least after the first day so that buyers and sellers have a feel for the current market and exporters have had a chance to accumulate some stocks to trade.
On Wednesday night, local time, the currency closed at US78.3c, which was at the high end of the preceding weeks trading range. Then when the US CPI data came in higher than expected the US Dollar shot up and as a result the Australian dollar fell by more than a cent that definitely made selling Aussie wool that much easier. But after briefly trading around US77.6c someone decided that the US inflation story was not so good and the retail numbers came in well under expectations. The result was that the US dollar got smashed and the Aussie bounced back above US79c where is has been trading since.
All this gyration gives rise to a range of around US30c/kg in the price of wool in a 24 hour period purely based on currency. Throw in the auction movements of 30c or more for the week and it gets fairly easy to get confused about whether the market is going up or down at present.
So taking a few steps back and looking at the market from an overseas customer perspective rather than as an operative at the coal face in the auction room should provide a clearer picture. There remains a selection of manufacturers, retailers and therefore consumers who cannot, or will not accept the current price level for Merino. In part because their particular products end up in a price sensitive area of the apparel market, where substitution to other fibres to maintain the price is going on every day.
The fast fashion, disposable trends for time poor, shallow pocketed youth is a cutthroat market at the best of times, and when the raw material cost rises by 10 per cent, the retailers quickly substitute other fibres. Other destinations for Merino fibre where the price of fabric or garment simply cannot rise by 10pc in a single season are something like the school uniform market. Simply moving from 20 to 22 micron does not provide much price relief, and the move to blends with polyester has already occurred some year ago.
Parents are under maximum financial pressure already and they will simply not cop a 10pc rise in the price of school uniforms, so manufacturers will simply look to other fibres. Nevertheless other sectors of the trade a showing determination, or even in some cases exuberance about the future of the Merino garments they are producing and their customer’s willingness to continue to purchase even with certain prices rises in the future.
The next few weeks will determine the price base for next season. If we can ‘survive’ through to April without a major correction it will be a sign of a new price paradigm, or a significant crash will underline the historical volatility of wool.