Rain shortages deliver frantic wool buying | Elders

Wool market hits 1300c on reduced offerings

The dramatic reduction of wool into sales because of the recent run of wet weather saw significant price gains last week.

The dramatic reduction of wool into sales because of the recent run of wet weather saw significant price gains last week.


The dramatic reduction of wool into sales because of the recent run of wet weather saw significant price gains last week.


THE recent run of wet weather which has dramatically reduced the flow of wool into store finally tipped the balance in favour of sellers and the activity in the auction room was rather frantic on Thursday.

Given the reduced forecast offerings in coming weeks buyers were forced to ramp up their buying to fill orders that have to be shipped within the month of October. After a minor rise of 5c on the first selling day, the market cranked up another notch on Thursday and the EMI jumped by 13c but significantly, medium Merino fleece types rose by 30c to 40c after having been on the back foot in recent weeks.

Superfine wool continued to build on recent performances, with solid gains for the week of around 45c, medium Merino fleece wool followed suit while medium micron skirtings rose by 20 to 30c, and those finer than 17.5 micron were often extreme. Carding wools remained solid with a lift of 10-15c, but crossbred are grimly hanging on to support levels and for the most part eased again.

The north market indicator closed on 1341c, up 8c. The 17 micron indicator closed on 1615c, 18 micron 1602c, 19 micron 1534, 20 micron 1411, 21 micron 1391, 22 micron 1359, 28 micron 771, and 30 micron 603.

As the middle of October processing mills are beginning to focus on the stocks required for the new season, and with current relatively low offerings some of the more astute mills are stepping up their activity. In the background there is still a bit of noise being generated by the US election circus, indecision about interest rates in the US and China’s debt levels, but the weather is starting to cool down across the top of the globe, consumers are restocking their winter wardrobes and processors know that their customers will need to buy more product in 2017.

The long lead time from farm gate to retail shelf by necessity means that decisions often need to be taken before orders are actually placed for garments, and although processors would like to wait for certainty, most know that they cannot wait too long. In parts of the pipeline individual companies or traders will maintain a buffer stock to service the growing ‘just-in-time’ mentality, but there is simply not enough capacity in the system for everyone to sit and wait.

The pendulum is moving steadily towards further upside for the wool market with the majority of the previous negative factors ‘under control’ at the moment. China’s growth prospects are lifting according to a recent Morgan Stanley report with GDP forecasts being raised from 6.4 per cent to 6.7pc for this year, and 6.4pc from 6.2pc for 2017.

The report noted better-than-expected external demand together with strong fiscal support from the government is generating more factory activity and profits. Certainly the activity in China on the wool front is also starting to lift as well. Uniform business is still providing the base-load of demand, but other product demand, particularly in the worsted fabric sector is also increasing. With the pipeline remaining virtually empty this immediately triggers buying activity in the auction room in Australia.

The on again, off again production cuts by OPEC is causing volatility in world markets. Not just in the actual market price of oil and its derivatives, but also in the world currency markets as a by-product of the uncertainty. Rising crude oil prices are positive for economies such as Russia, and also for world inflation in general. They will also tend to push up the price of competing fibres such as polyester making it easier for wool to sustain a rising price. However with the OPEC production cut far from certain, volatility in currency markets is creating some unwanted stress for the wool trading fraternity.

Superfine: European interests were again active this week particularly on the superfine and ultrafine lots that met their processing criteria. The small selection forced some buyers to widen their specifications and thus discounts for overlong or faulty wools lessened temporarily. The gap between medium and superfine wools continues to widen and some of the premium growers have long been waiting for is returning. Hopefully it will be enough of an incentive to arrest the previous swing towards meat production in those areas where the best superfine wool is historically produced.

Medium Merino: At the same point last year the Australian wool market stabilised and moved upwards strongly for the remainder of the calendar year, assisted to a degree by a falling local currency. At present the long-term outlook for the wool market is more favourable than in previous years as illustrated by the futures market that is happy to offer prices at reasonable levels for up to two years forward. Providing that the Australian dollar does not appreciate against the US currency there is no reason not to expect another dollar to be added to current prices by Christmas.

Crossbreds: 28 micron wools seem to hanging on to the coat-tails of the merino sector, and in US dollar terms appear to be holding at support levels on the charts. The 30-micron and broader look less comfortable but it is unlikely they will fall while the 28s hold on.

- Bruce McLeish is Elders northern wool manager.


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