FINALLY, after a month of negative movements the market moved back into positive territory last week and everyone breathed a sigh of relief.
Along with growers, top makers, spinners and weavers around the globe were also wondering when the market would find the bottom and show some improvement.
Last week’s auctions across Australia began on Wednesday with a few green shoots emerging, but still saw fairly heavy discounts for the poorer style wools.
The big mover was the previously maligned carding sector which finally stopped falling. Again, the headline numbers looked negative, but better wools across all micron categories were being well supported.
By Thursday the tone changed and the recovery gathered pace with crossbred wools also joining the party and recovery. Most of the Merino categories were able to register a positive movement as well.
By the end of the week AWEX’s Eastern Market Indicator had risen by a rather small 5c to 1781c, (up US3c) but the overall tone of the market had changed significantly, from one where buyers were ducking and weaving to avoid the numerous poor wools, to one where they were happy to step up to the crease and have a go.
There is still a mood of cautiousness around the trade, but it is clear that the market has now found some support.
AWEX’s Northern Market Indicator closed up 10c on 1819c. The 17 micron indicator closed on 2445c, 18 micron 2278c, 19 micron 2104c, 20 micron 2057c, 21 micron 2048c, 28 micron 760c, and 30 micron 663c.
There is still a mood of cautiousness around the trade, but it is clear that the market has now found some support. From a technical perspective a mid-November timing signal was always on the cards, and many of the individual categories were looking to find support on the charts.
The mid-November signal follows the end of the spring flush of wool (usually) and the end of the sampling period for retail customers. It is also triggered in part due to the looming Christmas recess, now just four weeks away, and therefore early stage processors are obliged to crank up buying activity to cover the recess period.
Retail purchasing managers have not entered the fray wholeheartedly, but they are starting to make their presence known by placing some orders. There is no doubt still plenty of angst at the final transfer point for wool, with prices still hovering around near record levels, finnicky customers demanding all sorts of deals and a global political scene that just won’t settle down.
With so much of the pipeline still trying to operate on a just-in-time scenario, mill managers will have a very difficult time over the next couple of months trying to keep everybody happy. Quality of deliveries is very important given that a lot of the orders in the system are now above market, and at such a high price level the customers are being very pedantic about every single aspect of the delivery – another reason that discounts for poorer style wools remain high.
Timeliness of delivery is equally important given that many mills operate with very low stock levels, but there will no doubt be some new orders thrown into the mix as well, which will frustrate the production managers along the chain. The supply issue is still lurking in the background, but has not really featured in discussions of late, while the market has been having a bit of a correction.
Supply will no doubt come back into focus this week with the release of the next forecasting committee report, who met last week. At the moment a drop of 20 per cent does not look out of order, with 15pc less bales having been sold so far this season, around 32pc less wool currently rostered for the next three week period, and relatively small volumes on hold in broker’s store for a New Year sale.
Although the prospect of scant supply in the early part of 2019 may be a trigger for the market to climb back to previous levels, there will no doubt be a fair bit of resistance to this prospect as well. The world economic scene is still quite mixed and uncertain. The UK Prime Minister is desperately trying to hold her party together long enough to Brexit, but that looks very shaky indeed at the moment.
The Italian populist government has basically given Brussels the Bird when asked to rewrite their budget to comply with EU rules, and so Brussels now has to show some ticker and enforce the rules, or risk other nations following suit.
President Trump has averted a disaster in the mid-term elections, but has had his wings clipped sufficiently to agree to actually sit down and talk with the Chinese before enacting more new tariffs. Hopefully President Xi from China can talk a bit of sense into him when they meet at the end of the month.
Although everyone has been concerned about the slowing of the Chinese economy to date last week saw a fairly significant statement issued by the Chinese consumer. China’s singles day, which has developed into an online shopping extravaganza led by Alibaba the huge e-commerce giant, set a new record $43bn of turnover. So much for China’s slowing economy – tell that to the millennials. How much value was textiles, and how much of that was wool is yet to be published, but it would be fair to assume that the wool industry got its usual share.
A week is a long time in the wool industry and the outlook has changed from downbeat to decidedly optimistic in the course of the last seven days. There is still some cautiousness, and quite rightly so, but the first couple of sheep have gone through the gate now. The rest may follow in an orderly manner, or it could develop into another blockage as they all rush forward.