AS the Ides of March approaches the wool market raised a caution flag concerning the future direction of some types.
The first selling day for the week was quite bullish with most good specification Merino fleece being keenly sought after from 16 to 23 micron, but the second sale day, perhaps coincidentally March 1 saw all but the very best superfine wools drift a little. But it was the bulk micron group for Merino, being 19-20 micron that was discounted quite heavily and lost 30c on the day.
AWEX’s northern market indicator closed down 2c on 1900c. The 17 micron indicator closed on 2826c, 18 micron 2407c, 19 micron 2136c, 20 micron 2001c, 21 micron 1928c, 22 micron 1903c, 28 micron 805c, and 30 micron 583c.
Some of the actual drop was masked by favourable currency movements as the US dollar strengthened on the second selling day as well. For example, the 19 micron indicator fell by US20c, but only showed a A5c decline for the week.
The broader micron Merino categories are clearly suffering from a shortage of supply due to worsening seasonal conditions, and previous early shearings. As the processing season swings towards these broader categories the demand is ‘okay’ but the supply is dwindling very fast and so the prices have no alternative but to rise, with jumps of up to 30c in local currency and also rises of around US5-10c. The skirting market looked a bit wobbly, and seemed to follow the jitters created last week with only the low vegetable matter lots standing up, and high VM lots continue to be heavily discounted, as the processors get fussy at this late stage of the season.
The broader micron Merino categories are clearly suffering from a shortage of supply due to worsening seasonal conditions, and previous early shearings.
Crossbred wools continue to drift sideways with a small amount of demand at current prices able to sustain this price level, but not to increase it. Carding wools continue to trade around current levels, as they have had their big adjustment back in January.
So understandably people overseas are beginning to wonder if the processing season is going to come to a quicker than normal close, or if we are just seeing a splutter in the market. We have certainly seen an upward spike in March/April before based on late season demand from China in the face of dwindling autumn supplies in the southern hemisphere. Although the total offering next week has risen to more than 46,000 bales, most of the increase is crossbred wools and the good spec Merino fleece types will probably still be in short supply.
We may well see the gap between good wools and those carrying processing faults widen further which is always a healthy sign as it sends a clear message to growers about the type of wool that the trade wants, and is prepared to pay for. High mid-breaks or high levels of VM fault do have a processing cost in topmaking and spinning and in a true market these faults are illustrated in the auction room by way of a discount for the offending lots.
Only the best quality wools are used to produce the next-to-skin casual, sporting or underwear that has been driving much of the demand of the previous two years, and which may yet be strong enough to sustain this market through until the end of the season. Buyers across the globe are quietly confident for the most part as the increase in price has been relatively steady and consistent, with the exception of a week either side of the Christmas recess, and wool is not the only commodity or apparel fibre that is increasing in price now.
Alpaca and mohair stocks have been virtually wiped out with a surge in demand this season, and a similar scenario exists for those in the cashmere game. But there are still some who are throwing their hands in the air and saying they cannot operate at these current wool prices. Uniform makers in the western world are certainly having some trouble maintaining wool percentage in their fabrics, so we may see a higher incidence of government workers or military types looking shiny and uncomfortable in their polyester suits in the future.
China’s latest PMI (Purchasing Manager’s Intentions) were a fair way off expectations - coming in just a whisker over 50, which is still considered expansionary, but locally in China there is a fair degree of scepticism about the government numbers. So many in the processing trade there are questioning the actual number and wondering if the economy is actually slowing and what this may mean for wool prices in the medium term.
Meanwhile, the new chairman of the US Federal Reserve has begun his tenure with a bullish statement about possibly more interest rate rises this year, which some view as negative for stock market valuations but weaning companies off cheap money must happen at some stage. American steel and aluminium producers obviously have expert lobbyists in Washington as illustrated by the sudden imposition of tariffs for imported products this week. Lets hope that wool does not get caught up in the trade war that Mr Trump seems to be initiating.
Superfine: The best superfine lots for the season have now been dispatched for processing in Italy and other destinations and it will be difficult to get an accurate gauge on the greasy market for a while until larger volumes reappear in August.
Medium Merino: Keep an eye on the 19 and 20 MPG’s in USD, rather than the EMI for a true indicator of the merino market. Increased demand for 21-23 micron will limit downside for the broader edge.
Crossbreds: There is reasonable demand at the current price levels. However, it could quickly be extinguished if prices were to rise too quickly.
- The Ides of March (March 15) is a day traditionally associated with the settling of debts.