Drought wools see market slide 96c | Elders

Drought wools see Australian market slide 96c


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Drought affected fine wools led a severe correction in the Eastern Market Indicator.

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PRICE SLIDE: Drought affected fine wools led a severe correction in the Eastern Market Indicator.

PRICE SLIDE: Drought affected fine wools led a severe correction in the Eastern Market Indicator.

THE build-up of drought affected fine wools led to a severe correction across the board last week with the EMI dropping closing 96c lower on 1874c.

Superfine categories were obviously most affected and the 16, 17-micron groups lost 150c, with medium Merino losing a lesser amount but still finished 40 to 80c lower.

Crossbred wools were mixed but still lower in line with the merino market, and cardings continued their major adjustment as they desperately search for a base in the new world order without double-faced fabric and the like, which has supported their price in recent years.

AWEX’s Northern Market Indicator closed down 107c on 1914c. The 17 micron indicator closed on 2582c, 18 micron 2397c, 19 micron 2258c, 20 micron 2175c, 21 micron 2153c, 28 micron 795c, and 30 micron 671c.

No doubt adding to the malaise was the crash/correction in global equity markets with most people around the globe seeing their personal savings portfolio looking a little glum compared to a few months ago. There is not necessarily a link between equities and wool prices, but the decline in individual’s wealth on the back of a share market correction does play on one’s mind, and adds to the degree of cautiousness being exhibited by those in the trade.

As has been mentioned previously, many players in the industry have had a stellar two or three years, from exporters, traders, topmakers and spinners and weavers. Now things are looking a bit less favourable with slowing demand, a very difficult supply situation and now a whack to their share portfolio.

The fundamentals for the wool industry have not really changed, but we have had a couple of disruptors thrown into the mix. - Bruce McLeish, Elders

The reasons behind the share market correction seems to be nothing more than rising interest rates in the US, and therefore the perception that higher funding costs will make life more difficult for companies to operate. Plus, the obvious over-valuation of many stocks.

The era of cheap money is seemingly coming to an end as was always going to happen, and the rest of the world is following the Dow Jones into correction mode, even though many did not participate fully in the upside. The ongoing trade war between the US and China is starting to bite, with Beijing forced to issue supportive actions to maintain reasonable growth.

Does this mean that wool prices will also be in for a major downtrend? Not necessarily. The fundamentals for the wool industry have not really changed, but we have had a couple of disruptors thrown into the mix.

Obviously, price resistance has become an issue in some quarters, but this is not true for many parts of the market. There are plenty of people operating in the traditional sectors comfortable that wool (Merino) now costs around $20 and will never again be purchased for $10/kg. ‘This is the new price of wool’ was often quoted in recent months.

For many of the new products being made from Merino wool – think sneakers, athletic wear and casual apparel – the actual cost of the fibre and the processing to make the finished product is not anywhere near creating a pressure point.

For sure, some of the traditional fabric manufacturers are having trouble getting their customers to come to terms with the price increase this season and they are prevaricating longer and longer about what to buy. The other major disruptor being experienced at the moment is the fact that China does not have the new boom product that has got everyone excited, as they have been able to generate in the past three years.

Fake fur, double faced fabric and semi worsted heavy coating material all came to the fore at various times over the past three years and helped drive the market through the normally dull period of August to October. This year the mills in China are much quieter and although the supply issue is playing on everyone’s mind, we have seen the lack of demand ultimately flow through to auction prices over the past six weeks.

Once the calendar ticks over to November purchasing decisions by many of the big retail chains need to be made and some of them will choose to adjust the price point of their collections to account for the increased raw material costs. Others will stubbornly resist and instead add more synthetic to the blend, but they run the real risk of a consumer backlash by playing into the hands of the environmental degradation brigade.

The tug-of-war continues with mills being caught in the middle, knowing that any small increase in demand would be enough to send prices skyward again, but not wanting to take a huge risk and purchase raw material at historically high prices until they have orders in hand. Most industry participants are of the view that a rebound in prices is just around the corner – at least for medium Merino fleece types, even if it is simply driven by the need to keep feeding machinery.

Despite the pervading sense of gloom among the Chinese processing fraternity, and their declining share portfolio values, the data still indicates that consumers in China, Korea, Japan and the US are purchasing clothing at a faster rate than in the previous year.

Chris Wilcox in the weekly NCWSBA newsletter highlights the positive consumer activity levels in the aforementioned markets, although the big four economies in Europe (Germany, UK, France and Italy) are doing less well with slight declines compared to the previous 12 month period. The wool market is facing a challenging period at present. It will be interesting to see how long it takes to regain the $20 handle again.

- Bruce McLeish is Elders’ northern zone wool manager. 

RELATED STORY: ‘Wool market cops 53c fall’.

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