IN a slightly disjointed selling week last week, thanks to the earlier Melbourne sale to account for the public holiday on Friday the market was decidedly easier.
On Tuesday Melbourne opened the batting and wickets fell regularly with nearly every micron category affected and downward movements of between 20 and 40c common.
Buyers seemed disinterested with even the better tested lines of wool being largely downbeat. On Wednesday all three centres were in operation, although buyers were left wondering if Fremantle was actually selling with a massive 55 per cent pass-in rate over there.
Prices again were on the back foot with losses of 20-50c common, although the market in the west came within a whisker of reaching the century for a couple of types.
The buying list was a change from the usual order, with indent Chinese buyers and major processors using the opportunity to get in front of the usual trading companies.
The wool industry does usually exhibit a fair amount of volatility, so why not overshoot to the downside, and then bounce up high and hard, which is what we have become accustomed to over the past few years – or longer.
- Bruce McLeish, Elders
On Thursday Sydney and Fremantle closed out the session with Sydney moving down a little to match up to Melbourne quotes and the west closing on a firmer note as it had previously overcooked the discounts a little.
Overall the losses for the week amounted to a deduction of 54c, with AWEX’s Eastern Market Indicator closing on 2013c. Not entirely unexpected, although most analysts expected a smaller drop given the emphasis on supply recently.
The wool industry does usually exhibit a fair amount of volatility, so why not overshoot to the downside, and then bounce up high and hard, which is what we have become accustomed to over the past few years – or longer.
Whether this is the bottom or not is still a point of conjecture and one that may not be resolved next week either with China signing off for a week’s holiday to mark National Day – when Chairman Mao founded the Republic of China back in 1949.
Importantly, October 1 also marks the beginning of Golden Week in China, which apart from the usual government fanfare and loads of fireworks is an important retail event. So, for many in the textile industry the volume of goods purchased this week will set the tone for the coming season. A positive tone at the cash registers could really light a fire under the wool market, while a disappointing result could well see processors delay further purchasing a bit longer adding to the stress already showing on the market.
Many are wondering about the so called trade war, and whether it is having an effect on the Chinese economy. To date the Chinese economy is fairing quite well with China able to offset the effect of American tariffs to a large degree, and providing tax cuts to affected exporters to limit the damage. Beijing’s level of understanding of Mr Trump’s constantly changing tactics is surely being tested, but perhaps that is part of the strategy employed from the Oval Office.
Thus far the trade skirmish is yet to derail global growth, but it is on everyone’s mind and may yet have a dampening effect on Chinese shoppers over the next week. It seems strange to be focussing on the Chinese shopper activity when analysing the wool market, but such has been the growth of their activity in recent years that they will play a major part in the forward direction of the wool market.
Europe is still the key driver in terms of fashion trend, and to an extent consumption, but China now provides the bulk buying to support the established trend, which is why the retail activity during Golden Week will be watched by many.
Elsewhere around the globe things are somewhat mixed. In Russia and Eastern Europe, the wool buying/processing season has kicked off in a major way with processors taking advantage of favourable currency exchange rates to procure raw materials at a rapid rate. Their shopping list does not include a lot of Australian wool due to price, but they are certainly searching for prompt stocks of lower quality, cheaper wools across Europe.
In Western Europe mills are very active and the buying presence of the Italian fraternity in Australia was again evident in Sydney and Melbourne, and also in New Zealand where a few Merino lots were available. Many mills in Europe are running dangerously low in raw material inputs while they wait to see where the market will settle. This will no doubt add to the volatility of the market as they will all presumably hit the ‘buy’ button at the same time – or at least try to.
Mills which have already purchased, and those who are still discussing next year’s wares with their customers like those at Intertextile Shanghai Apparel Fabric Exhibition on September 27-29, do not want the market to go down any more. It makes their existing stock lose value, and their customers nervous about making a commitment.
Many operators will be looking for the market to find a base and consolidate, hopefully without the usual ensuing spike. With China on holidays this week it may not be as quick as many would like, but at some stage in the not too distant future we will see more green than red on the market reports again.
