LAST week was obviously just a warm up, as this week the market really got going. Prices across the page were significantly higher with AWEX’s eastern market indicator setting a new record to close at 1681c – a gain of 58c.
In US dollar terms the increase was also significant with 40c being added to the overall market indicator. Price rises were reasonably consistent across the micron spectrum with crossbred wools perhaps faring the best as they registered increases of 80c+ in most cases.
Superfine fleece was obviously going to be well sought after in a designated superfine Sydney sale, and the best lots added an extra 100c or more to their valuations. Many other less stylish lots were still pushed into orders as buyers scrambled to secure quantity and price levels increased accordingly.
The big challenge now is to convince the consumer to face up to an increasing price for the new Merino garments.
Medium Merino ‘only’ added half a dollar as did the skirting and knitwear types. The oddments or cardings continued to print an almost vertical line on the chart by adding a further 60 odd cents for the week.
AWEX’s northern market indicator closed up 49c on 1767c. The 17 micron indicator closed on 2488c, 18 micron 2283c, 19 micron 2005c, 20 micron 1764c, 21 micron 1645c, 22 micron 1562c, 28 micron 815c, and 30 micron 616c.
Processors further up the chain still remain perplexed about why the prices are rising so strongly, and in the main they are a couple of weeks behind this market. So prices being offered for tops or yarn are around US$1/kg below current replacement price, and this is making everyone a little nervous.
We have seen the market get ahead of itself in this fashion many times before, only to witness the inevitable correction. Is it going to be the same this time as it was in August, or is something else driving this market that changes the fundamentals and therefore the outlook?
There are plenty of discussions and questions such as this going around the trading tables at present and we will all be much the wiser by this time next week. However, on the face of it, with around 50,000 bales being offered next week, prices in US dollar approaching resistance levels for some key micron groups, and cash certainly running low for some buyers a correction next week would not surprise the majority.
A correction need not always be a bad thing, particularly if it only gives back a portion of the rise recently made. This scenario has been the case for most of this year and even back to October 2015 when this current rally began. For nearly all of that time, in every micron with the exception of coarse crossbreds, the market in US dollar has been stepping upwards rather than range trading.
Charting gurus will no doubt have a term for it, but to most people involved in wool production and process it just looks nice. Grower can obviously plan forward with confidence, and feel justified for sticking with merino when so many of their peers moved away to goat like animals or beef.
Exporters, traders and processors have generally been able to manage the increase over the past two years quite well. Certainly the increased requirements for cash to fund their businesses has been a challenge, as has the evolving nature of the industry with large volume trades becoming a thing of the past, to be replaced by smaller more dynamic trading opportunities. But still, the premise of buy today, and sell in a month’s time at a higher price has made the Chinese wool trade very comfortable.
The big challenge facing the industry now is to convince the consumer to face up to an increasing price for the new Merino garments this year. Apple seems to be able to do it with each new model released, so it can be done people.
Superfine: There is room for more upside based on the charts, however people in the trade are certainly not convinced at this point in time. The market needs to steady and allow participants to adjust before going much further, and hopefully this will happen before the elastic band gets too tight.
Medium Merino: We are still 70c below where we got to in August for 21-micron in US dollar terms, so we may approach that level again, but the medium merino appears to be much more stable than superfine. Hopefully this will continue so that we do not kill off the demand that has been carefully built over the past few years. Already the chatter about high prices is increasing and more substitution is taking place, so the last thing that the garment makers want is a raw material market getting out of touch.
Crossbreds: They couldn’t remain at such a discount to the Merino for any longer, so they have launched off the bottom in spectacular fashion. This phenomenon applies to types that can be blended, or substituted for merino and only really as far a 32 micron. The coarser types are still unfortunately languishing at a very disappointing level.