AN interesting week in the Australian wool market saw a lot of red ink on the AWEX reports, but the underlying sentiment was decidedly better than it has been in previous weeks.
AWEX’s Eastern Market Indicator closed down 78c on 1776c. AWEX’s Northern Market Indicator closed down 82c on 1809c. The 17 micron indicator closed on 2495c, 18 micron 2318c, 19 micron 2109c, 20 micron 2050c, 21 micron 2043c, 28 micron 745, and 30 micron 636c.
However, in US dollar terms – which the majority of Australian wool is ultimately sold under – the movement for the week was a decrease of 29c. If the poorer drought affected wools are put to one side, which are admittedly a fair chunk of the selection, the overall result would have been a positive move.
It seems the market is beginning to move in a positive direction, but still being weighed down with too many wools that do not suit the needs of the processor.
Unfortunately, these wools will have to go somewhere and be processed and although the trade can always use a certain proportion of them, by not having the woollen products in vogue like last year – fake fur, and double-sided fabric – it is difficult to find enough spots to use them.
It seems the market is beginning to move in a positive direction, but still being weighed down with too many wools that do not suit the needs of the processor.
- Bruce McLeish, Elders
These woollen products were less sensitive to length and strength of the fibre due to their construction, and the fact that a lot of the processing was done on the woollen system. The more traditional worsted fabric which is woven requires a strong even yarn, and so simply cannot use very many wools that are not sound and strong.
The worsted fabric demand is beginning to improve as buyers place orders for the 2019-20 autumn/winter season now that they have had a chance to evaluate the samples but there is a percentage of customers demanding a lower priced fabric in order to maintain their price point in the market.
This results in blended products using other origin wools, often leading to a higher CVD and harsher fabric feeling, which after the initial softener has worn off, will ultimately provide the customer with a disappointment. The higher end retailers and processors are having more success passing on the price increase, although many do admit it is still a struggle, but simply trying to make a $20/kg Merino fit into a cheap suit for the masses does not work.
Some processors and retailers seem to have momentarily forgotten that Merino at current production rates is a niche fibre, and only accounts for around 1.3 per cent of the world’s apparel. There is a lot more opportunity, and less angst for all involved when the focus remains on the upper quartile of the consumer market who can afford the product, and can also appreciate the quality, the environmental credentials and in many cases the provenance of the fibre.
For many early stage processors in China the focus has seemingly returned to being a numbers game as they compete with each other in what is clearly an overcrowded market place. There is no doubt that overcapacity continues to be a problem and for too many processors the only option they see is to ‘dumb down’ their product to produce something cheaper in the hope that they can sell enough kilos to survive.
The smarter operators are investing in relationships with their customers and suppliers, listening to their views and finding a way ‘make it work’. Not necessarily an easy solution, nor one that every processor can engage in, but one certainly does not see the cashmere or silk industries wholesale dumbing down their product.
Adding some superfine Merino to a cashmere product can enhance a sweater or suit by adding fibre length to support yarn quality, in the same way that a percentage of nylon adds durability to a pair of merino socks. Adding a heap of polyester to a cycling jersey does not add to its performance, but merely makes it cheap enough to sell at an unrealistic price when it still has Merino on the label, and will ultimately lead to an unsatisfied customer.
So, the Merino industry is in a bit of a predicament and some will choose the easy, temporary way out, while others will stay the course. Many growers are voting with their feet and passing in wool rather than accept this lower price being offered, some are meeting the market, which is still a considerable increase from when they sold their product last year.
China slowdown
Processors have a more immediate need or pressure to run machinery and sell their product to maintain cash flow. With the obvious slowdown of the Chinese economy in part due to structural evolution and in part due to the ongoing trade war with America cash is a bigger and bigger issue.
Banks, despite the Chinese government stimulus are reluctant to assist the textile industry which they see as a risky and volatile cyclical money pit, so processors must rely on their own resources or terms provided by suppliers. The reprieve enjoyed by many over the past two to three years may have come to an end, and there could well be some rationalisation in store for the early stage sector, which will ultimately end up with survival of the fittest, smartest and best-connected operators.
Industry rationalisation
We have seen a major Italian weaving firm Marzotto Wool Manufacturing taking a stake in the Schneider Group wool buying operations in Australia and New Zealand. Marzotto Group chief executive officer Davide Favrin said by joining forces with G Schneider Australia they can make their supply chain more transparent and offer a fully traceable and sustainable product to their brand and retail clients.
As with many things’ facts are more important rather than sweeping generalisations, and as Scott Carmody points out in the AWI Weekly Wool Market Report the Eastern Market Indicator has now fallen back to levels of six months ago. But the composition is very different now with 20-micron fleece actually higher today than back in April, while the carding wools have fallen more than 300c. Perhaps the worsted sector wools will continue to retain their pre-eminence while the peripheral wools are still having a reality check.