Wool market continues to rise | Elders

Australian wool market continues to rise


Wool
WOOL MARKETS: AWEX’s Eastern Market Indicator continued to rise, gaining 2c to close on 1860c.

WOOL MARKETS: AWEX’s Eastern Market Indicator continued to rise, gaining 2c to close on 1860c.

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AWEX’s Eastern Market Indicator continued to rise, gaining 2c to close on 1860c.

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IT was another interesting week in the world of wool with another couple of cents added to the AWEX’s Eastern Market Indicator.

However, like is often the case the overall indicator summarises the situation a little – or a lot, and there were some interesting moves within the market.

AWEX’s Northern Market Indicator closed up 7c on 1905c. The 17 micron indicator closed on 2487c, 18 micron 2372c, 19 micron 2188c, 20 micron 2141c, and 22 micron 2129c.

As has been the case all season the poorer spec Merino fleece was discounted quite severely compared to the better lots, although there was some evidence of traders chasing cheap wool to fill machines over the recess.

The market was a little unsettled on the first day of selling as buyers seemed to spend a lot of time looking at each other and trying to work out who was doing what. It underlined the sense of uncertainty that exists in the trade at present where people (mills) know that they need to buy to keep machines running, but orders for finished product are harder to come by.

As has been the case all season the poorer spec Merino fleece was discounted quite severely compared to the better lots. - Bruce McLeish, Elders

On Thursday the bods got things sorted, and the market finished quite strongly with superfine Merino prices, regardless of style sought after, and medium Merino very firm across the nation. Skirting types generally followed the fleece and carding wools had another positive week. The finer crossbreds, for the few lots available, boomed as buyers purchased micron to fine tune their consignments for quick shipment.

So, we have a market situation where early stage processors are still nervous, but they do generally have full order books through until the Chinese New Year shutdown in early February. They must ensure that they have enough greasy wool on hand, or booked to be shipped by the time the auction system closes down on December 13. For them to sell further quantities after this period, basically March shipment ex-China mill is proving difficult at the moment, and this is the cause of some angst.

Everybody knows that supply will be limited in the first half of 2019, somewhere between the official production forecast of a 10.8 per cent reduction and the more anecdotal number of a 20pc reduction.

However, the uncertainty created in the minds of the Chinese trade by the ongoing trade war with America is making longer term forecasting very difficult. Some smaller mills in China have reportedly reduced or ceased production and sent workers home, while others are simply wondering which type to produce.

There has been one large order for fake fur hit the market recently using predominantly 27.5-micron wool, hence the strong push over the last week for 26 and 28 micron crossbred wool from Australia and Uruguay. This order is presumably filled now, and there does not seem to be much in the way of follow on orders.

Some uniform business is keeping things ticking over in the worsted fabric industry in China, but knitwear and carded sliver processors are wondering why they have been left out this year.

With tight financing conditions, still historically very high wool prices and a slowing manufacturing industry in China as illustrated by the latest PMI reading only coming in at 50.0 (neutral, not expanding) just about without exception, traders and processors in China were talking about the trade war. However, the G20 group of nations have gathered in Argentina over the weekend to sit down for a chat, work out what they should do, and not do so much of, take a few photos and no doubt have some nice steak, but marginal red wine.

Angela Merkel unfortunately made a late appearance due to some technical issues with the German Air Force One plane, but she will no doubt add a voice of reason to some of the debates.

The China Daily website has put a very positive spin on the outcome of China/US meetings by reporting that the two countries have agreed to “avoid escalation of trade restrictive measures, without further raising existing tariffs imposed on each other and slapping new additional tariffs on other products.” In typical Chinese media speak they also reported that “The two sides agreed to take immediate efforts to address issues of mutual concern based on mutual respect, equality and mutual benefit.” Perhaps a little different language than President Trump used in his tweet, but nevertheless a positive outcome has been achieved.

The Argentine President actually made a very good point a few weeks back at the last world leaders get together in Davos, where he was reported to have said that if you want to see why protectionist trade policies don’t work, just look at Argentina. His predecessors ran a very ordinary show with trade policies set up to try and support local manufacturing, at the expense of others with some pretty disastrous results leading up to the latest IMF bailout.

America hasn’t gone that far yet, and most people acknowledge that some of China’s strategies did need to be curtailed, so hopefully now things will progress back to a more open, progressive trading environment. The wool market was not involved directly in this trade spat, but the repercussions were certainly beginning to have an effect, and we should see the market breathe a large sigh of relief next week.

With only two weeks left until the recess buyers will be keen to cover existing requirements, and with talk of some reasonable business being done late last week in China the Merino segment will remain very strong for the remainder of the year. Carding wools are still struggling to find much demand, but from a seasonal point of view, it should show up soon – and perhaps with a confidence boost from the G20 meeting we will see some more activity.

Crossbreds may have just had their run, with not much sign of follow up business at the moment, but again, confidence is everything in the world of wool.

- Bruce McLeish is Elders’ northern zone wool manager. 

RELATED STORY: ‘Stronger sales, rain improve wool’s outlook’.

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