Wool market drops 62c | Elders

Wool market drops 62c

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PRICE FALL: The Australian wool market copped a 62c reality check this week.

PRICE FALL: The Australian wool market copped a 62c reality check this week.

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The Australian wool market copped a 62c reality check this week.

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A STRONG reality check for the wool market in Australia this week saw the AWEX’s eastern market indicator close 62c down on 1994c.

In US dollar terms it has been falling for five weeks now, but the pace of decline picked up a little this week to see US42c come off the market indicator. During the past three weeks China’s yuan had fallen to its lowest level in almost a year against the US dollar, before recovering slightly this week.

This was making imported wool even more expensive for the Chinese trade, perhaps adding to the negative sentiment in the auction rooms. Superfine Merino fleece with the better specifications was still keenly sought after, and Italian buyers were particularly evident.

However, lower spec wools were discounted quite heavily or passed in as grower reserves failed to anticipate the market movement. Medium Merino fleece finally had enough supply to move in line with the rest of the market and the buying fraternity let out a collective sigh of relief as they could finally fill their order requirements without belting the market about.

AWEX’s northern market indicator closed down 62c on 2026c. The 17 micron indicator closed on 2827c, 18 micron 2443c, 19 micron 2289c, 20 micron 2261c, 21 micron 2251c, 28 micron 964c, and 30 micron 664c.

There is still a feeling that the broader Merino types are a little overpriced by comparison with virtually no price difference between 19 and 21-micron – this will change in the near future as the market will eventually correct the basis to a more normal level.

Already it is noticeable in some of the price quotations from overseas that the change in different micron prices do not simply line up with the straight line AWEX movement, but from the more astute operators actually reflect the underlying cost of specific types of wools.

There will no doubt be some interesting conversations during the next week with buyers looking for the full discount, but some types of greasy wool with good specifications barely changed in price over the week.

The larger volume on offer of 44,000 bales allowed buyers to become more selective in the lots they purchased, and it was noticeable that some of the usual buyers were sitting on the sidelines waiting to see where the market would settle in the early part of the selling week.

By the close of play on Thursday everyone was back in again and swinging, so it would be reasonable to expect that the correction has run its race - for now anyway. With only one more auction sale before the annual three-week recess early stage processors will be keen to ensure they have enough fodder to keep mills running, and with the renewed level of inquiry at this new price level it would seem that the marker will be at least firm next week. The market will then be in suspense until sales resume again in the second week of August.

At this stage with dry weather enabling shearing to continue unabated, and some growers shearing early in order to reduce stocking levels sales volumes will likely be on the high side. Unless there is a surge in demand in August – unlikely given the summer holiday period of many in the northern hemisphere – we will probably resume sales again with a downward focus.

From a technical perspective the market will be trying to head back to where it was trading in the February to May period. Before the most recent rise in prices, mainly the medium Merino sector, the industry was very comfortable and the price level was considered to be sustainable.

So, the medium Merino segment will no doubt be under the most pressure, whilst the superfine sector (well tested lines only) will be in demand as their season kicks into gear, and these could actually go up in price as the medium Merino sector goes down. But the market will quickly settle down as we move into the spring, and as the shortage of supply issue raises it head again price will tighten up and move, hopefully slowly and consistently upwards. 

Rarely does the wool market move according to script however, and there will no doubt be some external factor, which with the benefit of hindsight we will be able to see very clearly.

There are many different conflicting signals bouncing around the world at present that pose a whole heap of different scenarios for future price direction. Historically gold and wool have had a reasonable price correlation, but at the moment the precious metal is at its lowest point in six months.

In general commodities fell in June but are still 30 per cent higher than a year ago but with the US now getting into a trade spat with Europe as well as China there is some concern about commodity prices for the coming year. Already copper is on the skids based on expected lower demand from China and the oil price is faltering, although nobody really knows what effect the US policy on Iran will do there.

US President Donald Trump seems to be creating enough turmoil at home to keep him relatively busy and off the world stage, but the new round of sanctions on Chinese goods kicked in this week with a reciprocal effort expected from China. Angela Merkel has had to navigate a particularly difficult period in German/European politics with the far-right/populist movement gaining ground on many fronts. Interesting times ahead.

- Bruce McLeish is Elders’ northern zone wool manager. 

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