It’s Christmas! Wool market ends 2018 strongly | Elders

Christmas bonus: Australia's wool sales end 2018 strongly


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CONTINUED STRENGTH: Merino fleece lines gained as much as 50c/kg at the final Australian wool sales for 2018.

CONTINUED STRENGTH: Merino fleece lines gained as much as 50c/kg at the final Australian wool sales for 2018.

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Merino fleece lines gained as much as 50c/kg at the final Australian wool sales for 2018.

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THE wool market enters the three-week Christmas recess on a firm note following a positive selling week where 46,000 bales were offered. Buyers made the most of the opportunity to secure quantities to keep processing machinery busy.

Merino fleece lines gained as much as 50c across the week. Skirting wools were solid, while carding wools eased a bit and crossbred wool, despite a very large offering managed to gain a few cents as well.

The spread of buyers for Merino fleece was widespread indicating a good depth of demand from across the globe and augers well for the resumption of activities in early 2019. With a relatively stable currency market, for a change, the price movement in US dollar and Euro mirrored the movements in Aussie dollars, with US prices increasing by 9c and the Euro prices increasing by 7c compared to AWEX’s Eastern Market Indicator quote increasing by 13c to close on 1862c.

AWEX’s Northern Market Indicator closed up 9c on 1906c. The 17 micron indicator closed on 2532c, 18 micron 2402c, 19 micron 2247c, 20 micron 2178c, 21 micron 2145c, and 28 micron 855c.

At the end of the calendar year the wool market is in a good place, having survived a reasonable correction since the August spike, and no doubt the lower supply situation is having a positive effect on the market prices.

At the end of the calendar year the wool market is in a good place, having survived a reasonable correction since the August spike, and no doubt the lower supply situation is having a positive effect on the market prices. - Bruce McLeish, Elders

Certainly, the market got ahead of itself with a rush of blood fuelling the market in August, which is traditionally a time for reflection and consolidation. In hindsight, the correction ‘we had to have’ was brought about by the overzealous buying in the off-season, and then a general slowdown in Chinese demand in particular, exacerbated by the trade war with America.

Wool was not directly targeted in the trade skirmish, thankfully, but the collateral damage was certainly felt within the trade through a general lack of confidence and concern over the slowing Chinese economy. Thankfully Beijing and Washington seem to be progressing towards a reduction, if not total resolution of the trade war.

China has conceded that changes need to be made to its “made in China 2025” policy and the compulsory transfer of IP rules, which have been often cited as the root cause issues for America, together with the immense balance of trade issues of course. Chinese car buyers will also soon be able to purchase a Buick or Chevy much cheaper, although why you would wish to drive a big ‘yank tank’ on congested Chinese streets is a question.

Hopefully 2019 will see a brighter outlook in China, which is obviously the largest single market for Australian wool from both a manufacturing and consuming market these days. Mills who have seen their demand decrease since October have been reluctant to produce anything unless they have an order in hand because of the uncertainty and the perceived danger of producing stock at historically high price levels may now have a more positive outlook.

Although the market recess and then the looming Chinese New Year shutdown will no doubt contribute to some volatility in January. 2019 should be a more stable, more positive environment for the industry than the past few months has been. There will be no doubt, a few issues to keep the media’s talking heads busy over the next few months as the UK struggles to work out how to exit the Euro in the next three months, given they have basically achieved nothing towards this goal in the past two years, and the Democrats in Washington ramp up the pressure on Mr Trump.

On an economic front, despite the dooms-day predictions, the global prospects are not all bad. The US Fed Reserve will raise interest rates again this week, but then sit and watch how things unfold before going again. For some reason the markets seem to think that this strategy is worthy of panic headlines, presumably just because traders want to create an issue, when common sense would dictate that a body such as the Fed Reserve should actually look at what is going on rather than blindly following a pre-determined path of action regardless.

As HSBC pointed out in a recent daily commentary the US equity bull market which started in the shadows of the financial crisis of 2008/9 has delivered the longest uninterrupted equity expansion in modern US history with a rally of 315 per cent in the S&P500. Equity market volatility has increased over the short term from a confluence of risk factors, although the simplest explanation, according to HSBC is that QE – central bank money printing – was positive for stocks, and now that banks around the world are easing back on this form of monetary policy, the stock market is adjusting.

Provided the adjustment is measured and controlled – exactly what the US Fed is now proposing – the equity markets will follow suit. The stability of equity markets has greater importance than ever for the wool market simply for the consumer confidence it creates or erodes. Nowhere more so in China, where the average Chinese citizen is heavily invested in the local stock market.

The wool market has seemingly weathered the storm thus far, dealing with its own price correction and lowering of demand that inevitably follows such a peak in prices. The underlying demand that still exists, coupled with the restriction of supply which will continue for the next 12-18 months, should see prices continue to recover for the first half of 2019.

- Bruce McLeish is Elders’ northern zone wool manager. 

RELATED STORY: ‘Australian wool sales close on a strong note’.

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