Better tested wools in demand | Elders

Better tested wools in demand


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IN DEMAND: Better tested wools received good support from the processing trade.

IN DEMAND: Better tested wools received good support from the processing trade.

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Better tested wools received good support from the processing trade.

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A MUCH better result was achieved at last week’s wool auctions across Australia with the better tested wools garnering good support from the processing trade although the poorer lines still dragged the averages back a little.

A weaker US dollar saw the local currency climb off the canvas, and this meant that the price in local terms was down a bit further as the trade adjusted their local buying prices. However, in US dollar terms the market finished almost unchanged (down 5c on 1854c) and in Euro terms the end result was up 3c/kg.

Plenty of growers made the decision to hold out for better times resulting in a pass-in rate of 17 per cent, but those who did meet the market saw buyers being more confident overall, but still selective about those wools which provided the best processing performance and bidding accordingly.

Prices achieved for Merino fleece last week, even after the correction that has occurred in the previous six weeks are still $4-$5 above the levels achieved at the same time last year, which is obviously why many growers are still happy to accept current prices rather than gamble on a price recovery.

AWEX’s Northern Market Indicator closed down 23c on 1891c. The 17 micron indicator closed on 2555c, 18 micron 2337c, 19 micron 2238c, 20 micron 2153c, 21 micron 2139c, 28 micron 778c, and 30 micron 661c.

The currency markets will no doubt add a little more uncertainty in coming weeks with the Australian dollar confounding all the analyst predictions of late and climbing back above US72c. If it remains at this elevated level for the next few days buyers will again have to account for it in their price calculations, but with the pending Mid-term elections in the US early next week stability on the currency markets is anything but assured.

Currency aside, the outlook for the wool market is getting stronger, although with a large degree of caution still persisting among Chinese processors. The recent correction has taken some of the steam out of the market, which many felt was necessary given the slowing demand that was evident in the traditional markets.

The lack of a “new fashion” fabric this year in the Chinese domestic market has provided a flat spot, but now we are beginning to see the shoots of new orders emerge. Export orders that have previously been delayed as downstream processors and retailers prevaricated and twiddled their thumbs are beginning to come across the desk. It is not exactly a flood of orders, but there are some encouraging signs.

China remains the single largest customer for Australian wool and now also the single largest consumer of final products, not just a manufacturing base. - Bruce McLeish, Elders

There is still plenty of angst about the price, even with the recent correction having eased the pain somewhat, and unfortunately for the world’s oceans a lot of synthetics are still being used.

Obviously, the world will be watching the outcome of the US mid-term elections closely with the outcome expected to be a referendum on the first two years of the Trump Presidency. The result may well have an impact on global growth with either a resurgent green light to continue with current programs, or perhaps a more contrite, measured approach if the Republicans lose control of the House or the Senate.

Perhaps the more important item will be the discussions on the sidelines of the G20 gathering in Buenos Aires, Argentina at the end of November. It is planned that President Trump will sit down with President Xi and nut out a solution, compromise or escalation of the trade issues that to date have created a cloud over many facets of world trade.

Trying to predict President Trump’s negotiating position is fairly difficult, which is how he likes it, but at least the two gents will have a face to face meeting and perhaps get things back on track. As many experts have said “nobody wins from a trade war” and while it may have been a necessary step to get China’s attention and begin to work on rebalancing the trade deficit that exists between two of the world’s largest economies, and some of the perceived injustices thereof, it has probably now gone far enough that sitting down and sorting it out like adults is the next step.

While the trade war has yet to directly impact the wool industry, the indirect effects have been starting to show. A degree of the reticence from the buying fraternity and the early stage processors in China has no doubt been directly created out the uncertainty of outcome around the whole trade issue.

At a time when the Chinese economy has been slowing as it transforms to a more mature service-based economy from its previous ‘manufacture and export’ to the world system is being challenged. The Chinese government had been focussed on reforming the shadow banking issues and reforming the overweight state owned enterprises, but has now been forced to move back into support and stimulation mode for many industries.

For such an incredibly large bureaucracy it is showing impressive flexibility, which thankfully should be able to steer the ship through the current issues.

China remains the single largest customer for Australian wool and now also the single largest consumer of final products, not just a manufacturing base. Often quoted during the bad of days of the wool stockpile, and how to get rid of it was the phrase “if every person in China wore a pair of wool socks......”. If one of the current new product items such as wool sneakers were to become a must have item in China, it would be difficult to keep up with demand.

There are in fact so many new and innovative uses of merino wool being promoted at present, not just in China, but across the globe that providing our world leaders can have rational discussions and keep the ship upright, the outlook for a luxury, natural, sustainable fibre like merino looks very good indeed.

The next few weeks will be crucial in developing a foundation for 2019, with a measured, careful recovery the preferred outcome for all involved so that stock already in the system does not become overpriced, but neither does the market bolt away and destroy confidence. We will just have to cross fingers and toes for not too much volatility – and a bit of rain.

- Bruce McLeish is Elders’ northern zone wool manager. 

RELATED STORY: ‘Drought wools see Australian market slide 96c’.

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