THE Australian wool market resumed proceedings again last week after the three week recess to mixed results.
Most of the trade had predicted a soft opening given the overheated medium Merino situation prior to the break. A reasonably large offering, by recent standards, of nearly 50,000 bales was thought to have been enough quantity to allow the market to continue the easing bias. That was evident in the lead up to the auction recess, and Tuesday’s reports showed just that.
The market in Sydney and Melbourne did open weaker with the medium Merino categories falling by 30c to 40c and all other categories easing by a bit less than that. The effect in US dollar terms was less pronounced thanks to currency movements, with about half of the move registering on overseas buyer’s limit sheets.
Wednesday saw a complete reversal of the trend and the US14c loss was almost totally recovered although with greatest emphasis on the superfine end. Medium Merino categories trod water, whilst the crossbred end still fell. Thursday saw the upward momentum continue and another US21c was added to the price of Australian wool as measured by AWEX’s eastern market indicator. In the final wash-up the EMI had risen by 9c to 1990c.
The emerging data around supply for the coming season is driving the European fraternity to ramp up their activity.
AWEX’s north market indicator closed up 14c on 2027c. The 17 micron indicator closed on 2816c, 18 micron 2478c, 19 micron 2292c, 20 micron 2232c, 21 micron 2210c, 22 micron 2184c, 28 micron 871c, and 30 micron 648c.
The emerging data around supply for the coming season is driving the European fraternity to ramp up their activity although in a sense they are buying their selected wools as soon as they become available as they have demand at hand, and only a certain window of opportunity to purchase their higher quality raw materials.
The largest buyer by country in China is generally a little more circumspect and hesitant at present given the negative movement in their own currency versus the US dollar, the uncertainty of the trade war with America, and the previously overheated market they created back in May/June.
This situation is borne out with the medium merino segment generally moving down across the week, and the crossbred section basically crashing by half a dollar. The latter two segments realistically only had Chinese demand prior to the recess and as that has now waned, so too has their price support.
However, it is far from a dire situation for the wool market for those who are seeking higher or at least maintained prices. There are certainly some in depth discussions going on across the globe at present with new prices being quoted for the new season offerings of yarn, fabric and garments.
Some buyers are even questioning the validity of the price charts they are shown as they look in disbelief at the somewhat meteoritic rise in raw fibre prices. Once the dust settles orders will be placed and these will feed back to the market place for further purchases of greasy wool. In the interim there are plenty of buyers and traders in China now calculating prices in RMB and finding it difficult to generate as much enthusiasm among their clientele as previously.
The scouring issue in China is also still persisting with strictly enforced environmental controls limiting the effluent output, and therefore scouring plant through-put. These issues together with a small amount of stock in the pipeline will probably keep Chinese operators a little quieter in short term.
The big question everyone from overseas is asking relates to the projected supply situation in Australia this year. Anecdotal comments range from 10 to 15 per cent reduction as an estimate for the coming season. The reduction in supply will not be a simple number at the end of the season obviously with massive reductions of 20-30pc already showing up in medium Merino, but offset to a degree by gains in the finer end.
Spring rainfall will be the key as growers across drought affected regions try to hold onto core breeding stock at present. Given the usual seasonal pattern of shearing and wool sales in Australia it will be the back half of the season when we really know how supply will pan out, and this will be enough to keep the buyers on the front foot at a time where they are usually cruising along not paying too much attention.
So, while the European crowd bask in very warm temperatures by the seaside for their annual holiday at San Remo or similar, they have already instructed their buyers to keep buying the required quantities each and every week. The Chinese trade is also suffering from a bout of hot weather – they probably need to be reminded about merino’s trans seasonal attributes again – but a bit like the A.A.Milne character Eeyore they are feeling a little depressed about the cloud hanging over them at present.
The trade war, lower currency, environmental controls, and general exhaustion after the wild ride of last season are all making them a little reluctant to pursue the market too strongly at present. This will change in the next couple of months once a bit more 2019-20 demand begins to filter through.
Superfine: With the European fraternity in full swing and the tough season restricting volumes available the best superfine lots will continue to increase in price. Depending on the volume and quality of drought affected superfine wool coming onto the auction market in the next few weeks we may see a big disparity between good quality and poor-quality lines.
Medium Merino: It will only take a small increase in demand for the medium Merino segment to ignite again, but it will probably not happen for another couple of weeks.
Crossbreds: For a while it seemed as though demand was returning for crossbred wools, but unfortunately it has disappeared at the moment. When the summer heat dissipates a bit more people will turn their attention to coating again and hopefully we will see prices rebound.