Wool prices ease

Wool prices ease


Sheep
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Prices eased across the board on Wednesday in the Sydney/Melbourne auction.

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A small offering of less than 27,000 bales made it difficult for buyers this week to get enough quantity of any single type this week, and in response buyers tended to be selective and keen to not push prices too much further. The fickle currency market saw a much stronger Australian dollar on Wednesday. That combined with more selective buying meant that prices eased across the board on Wednesday in the Sydney/Melbourne auction.

On Thursday exporters were keen to fill the orders already started so they had to chase the small quantities of medium Merino fleece available and prices for that segment rose by 15 cents, while the rest of the market continued to ease slightly. At the end of the week the market as measured by the EMI had fallen by 16 cents, but managed to eek out a small gain in USD terms of 6 cents, while in Euro it was 8 cents easier.

So overall the market has paused for perhaps a bit of reflection and hopefully some much-needed stability. It is possible to find people who are complaining about the current high prices, of course, but a group of Elders growers on a tour to Italy at present have not encountered any such suggestion. In general, and almost without exception the mills visited were comfortable and pleased that the market was at the current level.

Their big concern is the future direction and the amount of volatility that could show up in coming months. Certainly the price increase from last season until now will come as a shock to some when the new season collections begin to hit the exhibitions or catwalks at the end of June. A raw material price increase of 40 per cent since July 2017 will equate to something like a 30pc increase in the fabric price, assuming other costs along the processing chain have remained relatively unchanged.

So when buyers of yarn and fabric front up to their customers at the end of June at exhibitions such as Pitti Filati or Idea Biella there will be some difficult discussions. Each mill will be forced to explain what has happened to the greasy wool market, and why this increase has come about. There will no doubt be a lot of posturing, hand wringing and expletives going on, but at the end of the day most people agree that this is now the cost of high quality merino fibre.

The difficulty for many European mills is that they are now putting the finishing touches on a new collection of fabric or yarn, born from the considerable creative skills of their respective design teams, and they must have a offer price for each item. With all of the colour variations for each grade of fabric (yarn) in each of the different fibre compositions, in each of the themed ranges they will have up to 2500 single products to offer. Some of these new creations are an update from previous years, some are changes suggested by their clients, and some are just ‘right out there’ products that may never actually see the light of day on a retail shelf, but bring buyers to the table. In true Italian style the creativity masters have come up with some unique and special things to show their clients who are serious about this fibre called merino.

It is all very well being creative, and at the Italian mills visited this week by the Elders tour group the commitment and passion that exist in Italy have been clear for everyone. But also the price must be able to be negotiated between buyer and seller without someone getting burnt in the near future. If fabric (yarn) prices are calculated using today’s price, and then the market falls by 20% over the next 6 months people will turn away from merino in droves because of the volatility. If the mills are able to bridge the gap between last year’s level and that of today, and sell their product, which will be delivered sometime in early 2019 they cannot afford to then face a further price increase like we saw this year as some will not survive. Merino is now a high priced fibre and the outlook remains extremely positive, but volatility is perhaps the elephant in the room. Certainly the message from Italy this week has been that they are very happy to see growers receiving a viable return for their efforts, so that they will continue to produce merino in the future, but the volatility needs to be reasonable given the long lead times involved in the textile chain so that mills are not faced with un-manageable risk. There seems to be no easy answer to this problem unless people embrace the futures market.

Wool is not the only commodity that is soaring in price at the moment – fuel prices, as we all know are going up, and none more so than bunker, as marine fuel is known. Prices for bunker have risen more than 20% since the start of the year, and in Europe have hit their highest point since 2014. Maersk Line, the world’s biggest shipping group, is raising prices in response according to a recent Financial Times report. This is one of the extraneous factors that add to the wool price in addition to the actual cost of greasy wool. With the emergency bunker surcharge applied by Maersk, and surely matched by others, the freight cost for a 40ft container of greasy wool from Australia to China, or wooltop from China to Europe will cost 14% more. With the argy bargy still going on between the US and Iran it is conceivable that crude oil

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