NEVER a dull moment in this wool industry it seems, with a very quick turn around from only seven days ago. After a slightly softer tone in most areas last week the processing fraternity looked at the comparative price levels, their stocks and what they could sell and acted accordingly.
We saw an overall movement in the AWEX’s eastern market indicator of 80c to 1818c, although the majority of this was courtesy of a weaker Australian dollar. The movement in US dollar terms was a much ‘more manageable’ 25c, and the European buyers needed to add a further 39c to their production calculations, which they will no doubt relish – not!
With movements in local prices of this magnitude everything was dearer it seemed, but buyers overseas were actually quite selective about which types they targeted, and therefore which categories rose. Superfine types, particularly ultrafine types were up to US50c/kg dearer, while 18 and 19-micron indicators didn’t really change a lot by the end of the week.
Medium Merino fleece (20-22 micron) were really under the spotlight and saw rises of US30-70c/kg. Crossbreds continued their renaissance and gained US30c and cardings managed to pick up US20c. This paints a much more controlled picture than looking at the Australian dollar reports in which more or less everything was up by 80 to 100c – and that looks like a market out of control.
AWEX northern market indicator closed up 90c on 1909c. The 17 micron indicator closed on 2815c, 18 micron 2428c, 19 micron 2165, 20 micron 1999c, 21 micron 1893, 28 micron 791c, and 30 micron 603c.
Merino is arguably no longer a commodity fibre and perhaps will not act in the same way as cotton and polyester.
Will this bubble burst, as we saw this week with the US share market dropping another 5 per cent on Monday to add to the previous week’s fall and sending a chill throughout the globe, before stabilising later in the week and regaining a little ground. Other commodities such as oil followed that lead and reversed much of the gains from the past few months.
Merino is arguably no longer a commodity fibre and perhaps will not act in the same way as cotton and polyester from a global price trend point of view. It is still however subject to the laws of supply and demand, and tight supply is certainly the driver at present. With only around 25,000 bales of Merino fleece and skirtings offered in Australia this week and a paltry 5000 in South Africa, the topmakers, spinners, knitter and weavers are getting more than a little concerned. Yes, their clients are telling them, very loudly in some cases that prices are already too high, but the peak season for production is underway and goods must be made now and over the next three to four months.
At current price levels some demand will obviously be strangled and the processing season quite possibly be cut short, but in the meantime the reality is that stocks of wooltop and yarn are very low, so processors must keep buying greasy wool and producing.
It may well all come to a head in April, which is getting late enough in the season to ship wool from Australia, comb it in China and then spin, knit or weave somewhere around the globe before goods are required to be dispatched to retailers for the autumn/winter season of 2018-19. Providing we do not see too much more frenetic activity like this week, the market may, perhaps, possibly be able to cling to the top of the wall that we have scaled. A correction of some degree is much more likely, and the carding market showed us that all is not lost even with a record fall a couple of weeks ago, but it has picked itself back up, dusted off and moved back up another US20c. So while it would not surprise many to see this market continue climbing given the scarcity of supply, a drop of a couple of dollars is also a strong possibility.
If such a correction did occur there would obviously be plenty of people in the chain left hanging with expensive stock and egg on their faces and they would probably try to limit the damage by buying on the way down to average their prices. With more than likely less than 25,000 bales of merino per week available the appetites of the larger combing mills in China each and every week make a sustained fall unlikely.
At the other end of the pipeline exasperation continues about how to deliver the goods that were showcased in July/August at a price even remotely resembling price ideas quoted back then. Prices for merino garments will have to undergo a major adjustment and in the long run this is not a bad thing. The asking price for a high quality merino sweater, jacket or scarf will be getting close to the price of a similar cashmere item and beyond the reach of many consumers. Not necessarily the end of the world, as those who cannot afford it can wear cheap chemical fibre and aspire to being able to purchase that superfine, easy care, ethically produced, sustainable merino garment next season.
Superfine: A defining line seems to be appearing, maybe temporarily, with sustained demand for 17 and finer, but 18s and 19s seemingly running out of puff.
Medium Merino: The strong performance of these wools will take a little while for the market to digest, and hopefully some consolidation for a week or three, but demand is still consuming the product being made at present.
Crossbreds: Demand is increasing, slowly – and when supply reduces in coming months it will allow more sustained rises.