ALL markets eventually experience a correction and after eight consecutive increases, the wool market indicator – AWEX’s eastern market indicator - retreated into negative territory during the past week. This was an expected move and no real surprise given the heady moves of late, especially at the superfine end of the market. All market segments eased during the week with Merino fleece types retreating by between 50c to just over a 100c/kg.
AWEX’s northern market indicator closed down 54c on 1587c. The 17 micron indicator closed on 2290c, 18 micron 2153c, 19 micron 1873c, 20 micron 1535c, 21 micron 1414c, 22 micron 1328, 28 micron 740c, and 30 micron 575c.
Skirting types followed suit, and cardings were down only minimally. Crossbred wools had risen far less than their merino counterparts, and thus retreated far less with falls generally limited to 10 or 20c. Overall the EMI eased by 44c in local currency terms and US33c or Euto27c. Even though the correction was largely expected, some growers were caught unawares and the pass-in rate for wool this week climbed to 16.4 per cent as buyers became very selective with their purchasing strategies.
The wool trade remains generally positive about the current market situation, although the chorus for superfine wools to stop jumping up had been getting very loud. Now that the market has been proverbially slapped back down, all are wondering if this is enough, or will there still be a further adjustment in coming weeks.
Medium Merino has of course been correcting for a couple of weeks now but this is the first negative move for superfine wools for more than two months. There is some understandable or predictable nervousness among those who purchased wool in the past few days around whether they made the correct decision or not, but as most buyers have been operating on a strictly hand-to-mouth basis nobody has really taken a large position and got themselves into trouble.
A group of Elders growers from South Australia, Victoria and NSW have spent the week in China visiting various manufacturers and the AWI Shanghai office. In addition to seeing some of the newest product developments being created by AWI in conjunction with their various Woolmark licensee partners the group has held discussions with large processors, traders and fabric mills. The overall picture in China remains very optimistic for wool with China clearly increasing its consumption of wool at the consumer level as the wealth of the middle class increases.
The education programs being run by AWI to dispel the myth that wool is hard to care for, or that it is itchy and scratchy, or only useful in cold weather are to a degree easier to facilitate in China than many other markets. The incredible uptake of social media in China means that, providing one uses the correct platforms in the country, a large section of the market can be reached quickly, cheaply, and effectively via social media or web based campaigns. Working with what is now the largest washing machine manufacturer, Chinese brand Haier, to reinforce the simplicity of using the wool cycle on a washing machine to launder woollen garments is one such example. It might seem unimportant, but in fact is it a simple way to remove or break down one of the major barriers that consumers have in their minds when it comes to a purchasing decision about wool.
Fabric mills in China, whether they are producing the new fake fur or the still popular double faced fabric have reported a very good season thus far. In general the fabric mills have now completed their production for this year, with the fabric now being made into garments across China and the world. There are now a number of expos being held to encourage those last minute purchases from retailers for this season – autumn/winter 2017-18 – but more importantly to begin showcasing developments and styles for the 2018-19 season. The current market price plays an important factor in these discussions, as the fabric supplier needs to calculate a price for his offering to conclude a sale. So everyone will be keen to see the market stabilise shortly at a level where they can continue to plan ahead.
Whilst there will undoubtedly be some further adjustments in the basis between superfine and medium Merino and the usual volatility that occurs in the April/May period with reducing supply, the Easter recess and spasmodic seasonal demand at this time of year, the market will need to find a base. Currently the difference in price at the superfine end of the market is too high to be sustained as the gap between for example 17.5 and 18.5 micron is too large. A manufacturer will obviously decide to move towards 18.5-micron product rather than the more expensive 17.5-micron when possible in order to reduce costs. This will naturally shift demand until the price gap narrows. This is perhaps why the futures market is suggesting that medium Merino have reached a support level now, but the superfine types are still above their support level.
Superfine: Perhaps another dollar downside for these types until finding a base, but there is still some demand needing to be filled in coming weeks.
Medium Merino: The futures market confirms the view that prices have adjusted sufficiently for now, so expect prices to stabilise or more likely move slightly higher from here.
Crossbreds: Prices for Crossbred wool will continue to move sideways, but not increase substantially for the remainder of the year until the current stock is cleared.