There is still enough uncertainty around for the wool market to appear a little directionless at present – with some exceptions like the traditional superfine sector, the rest of the market doesn’t seem to know if it wants to go up or down.
This week the market initially fell slightly on the first day of selling, before recovering mostly to end up closing down a solitary cent on Wednesday. On Thursday the market showed a little more promise and despite the largest selection of merino fleece for some time managed to hold on and only closed down by another cent. At the end of the week the market indicator was 2 cents lower in local currency, but 12c higher in US dollars and around 8c higher in Euro.
The few lots available of the best superfine merino types were again keenly sought after by the Italian buyers, while the lesser quality superfine merino fleece came back to earth with a thud, falling by 20-30c. Medium merino fleece, despite being in abundant supply, closed the week more or less unchanged in local currency, which with a stronger Australian dollar meant a higher price in $US for customers overseas.
Crossbred wools also fared well despite the stronger currency and closed unchanged across the week. Skirting types followed their corresponding fleece types and carding wool prices were solid.
In typical fashion the wool market over the past six weeks has recorded a jump in price, got ahead of itself, then eased for a couple of weeks before once again finding a base where business can be done. Another rise then follows which maintains the overall uptrend that has now been in place for two years so the picture when viewed in a simplistic long-term chart is quite a measured steady uptrend.
Those involved in the industry know that it has been much more volatile; nevertheless the prices being achieved today in all categories of wool are considerably higher than two years ago. Predicting where the price will be in two years’ time is a challenge at best, or more likely a folly given past experience, however it is easy to be more optimistic than pessimistic at this point.
Supply is growing slightly perhaps, but the increased number of merino sheep in the system will have only a marginal impact on production in the next couple of years. Climatic conditions can have a far larger impact on total Australian, and world production, and unfortunately a drought in Australia is always possible, as is a good season as well, thankfully.
In Argentina this year the season has been kind after the severe drought experienced last year. As a result the wool production will be increased, but also much coarser, with little wool below 19.5-micron expected to be available in the upcoming season. That will obviously focus buyers’ attention towards South Africa and Australia to secure their requirements for fine and superfine wool this year.
On the demand side of the equation the long-term picture still looks good. There is some pain being experienced as processors talk to their customers and plan production schedules for the upcoming season. Historically orders are placed in Sept/October for the next season, so in some cases the “new” prices being quoted are a huge increase from last year’s levels.
However, in this day of just-in-time the annual order placement scenario is more unlikely, and smaller orders are placed more often throughout the year, so most retailers would have had exposure to price increases during the past six months. That doesn’t mean that the conversations will not be difficult though, with some talk already in the knitwear sector of substituting alternative fibres or looking for cheaper blends and origins of wool in order to meet the perceived price point of the retailer.
Others, however, are operating in a less price sensitive segment and feel that they can pass the prices on, at least to a degree. All processors and retailers would like to see a period of stability with the market remaining unchanged to slightly positive so that the purchasing decisions can be put on paper.
At present across Europe and Asia there is still a large degree of hesitation when it comes to committing the purchase order. In one sense, when you look at the performance of the wool market over the past six weeks it is understandable. However the longer they wait, the more urgent the timeline will become, and there are only a few operations around the globe that can fulfil a sizeable order for prompt delivery.
So while China waits to see how the fake fur apparel performs at retail, and the European processors wait for indications from their retail customers the wool market will hopefully remain stable. A large decrease in price is very unlikely given the positive scenario for the longer term and the Riemann futures trading levels recently underline this outlook. A further jump in prices is probably just as undesirable at present for the longer-term health of the market – so hopefully steady as she goes becomes the norm.
