WITH a much weaker Australian dollar and a relatively small offering of 36,000 bales the wool market in Australia did not disappoint those growers selling last week.
On Wednesday the market jumped out of the blocks and fell just short of a century on the first day with a 99c rise achieved for the AWEX’s eastern market indicator. According to AWEX this was the largest single daily increase since 2002. Merino fleece in every micron recorded triple digit increases and crossbreds and cardings rose by more than 50c. It was not just the currency factor as US dollar prices also rose by 27c.
Most people expected the market would then steady and consolidate the position, but Thursday saw further increases with yet another 30c added. So, at the end of the week buyers were quite amazed to add up the totals and find that the market had risen by A126c, with the EMI closing on 2116c.
18-micron fleece managed a 200c increase, and most other superfine indicators were not far behind illustrating the depth or buying orders for the finer end of the clip. Medium Merino categories were a little more subdued with rises of the order of 130-140c, while crossbred types jumped up in value by 70c. Cardings were 40 to 80c dearer to round out a spectacular week.
AWEX’s north market indicator closed up 136c on 2163c. The 17 micron indicator closed on 3007c, 18 micron 2682c, 19 micron 2465c, 20 micron 2376c, 21 micron 2341c, 28 micron 944c, and 30 micron 709c.
Most buyers overseas were left a little dumbfounded by the strength of the market last week.
Most buyers overseas were left a little dumbfounded by the strength of the market last week. Prior to the opening of the auction business was being transacted, not in huge volumes, but certainly enough for buyers to feel that the previous week’s levels were being accepted by downstream processors. Some no doubt had some old cheaper stock to average prices with, and some were forced to keep buying small amounts to keep machines moving, while others had taken heed of the many comments regarding a shortage of supply in coming months.
Such is the small volume of wool available in any particular week these days that this combination of orders was sufficient to create the volatility which added half a US dollar to prices. With the Aussie dollar under fire because of other global events, the outcome in local currency terms was simply astounding.
The big question now is, can these gains be maintained or will we see a complimentary correction in price straight away?
There are two divergent schools of thought currently, with some looking at the big picture, more or less ignoring the daily fireworks, and pointing to the supply demand equation and saying that it is virtually impossible for the market to come down much in the next few months. Others are pointing to the fact that buyers of fabric and garment had just started to accept the new season prices, and have now been walloped with a further significant increase, and those buyers are currently refusing to entertain such a sudden increase in prices. This scenario would lead to a correction in the near term to give back half, if not all of the increase of last week.
A US50c increase in itself is not an insurmountable mountain for the market to absorb. However, it does come on the back of 20c the week before, and at a time when the market was trying to consolidate the gains from the previous six months and plenty of price discussions were taking place about what might be possible for the new season garment and fabric orders. More significantly buyers in China have seen an even larger price increase of almost 10 per cent in the last month as their own currency has devalued against the stronger US dollar. This means that their wool purchases, predominately made in US dollar are getting much more expensive at a time when demand in China is slow.
At the same point last year, the Australian market did see a sizeable correction when Chinese demand shut down temporarily and the market retraced all the early season gains it had made. At that time fake fur demand from China had been the single driver for the surge in medium Merino prices, but this season thus far has been different. Demand has been more widespread, both in micron category and geographically with Europe playing a bigger part and India also having a go.
The only thing we can be certain about is that we will see some volatility in coming weeks and months. There is plenty of angst around the globe which will keep the currency markets moving. President Trump now says that a strong US dollar is a good thing because it shows support for his economic policies. A strong US dollar is not at all favourable for emerging countries as their debt is predominantly held in US dollar.
Turkey seems to be in all sorts of strife at the moment with their debt increasing each time the Lira is devalued. Current year to date is something like a 40pc increase in their mainly Euro debt thanks to some questionable economic policies. How that will affect the likes of Spain which holds the majority of this debt should it come to a default or IMF bailout situation is a question surely to be high on the agenda at European government meetings shortly.
China is proactively engaging in dialogue with the Trump administration to try and head off any further damaging tariff salvos given that their own economy is showing more serious signs of slowing. All the while the Aussie dollar is being shorted as a proxy for risk and bad news in general. This will mean that growers in Australia may well be shielded from any downturn in prices in the short term, but it has been an increase in demand which got us to this price level in the first place, so the industry dearly wants that to continue.