The Australian wool market resumed in much better form than the national cricket team last week and managed a solid increase on the previous innings. A larger offering in Melbourne necessitated a three-day sale and so buyers there were forced to pad up earlier. Not to be outdone, the buyers in Fremantle decided to resume early and roll their arm over on Tuesday as well. The market was solid from the first over of play with some favourable currency movements over the recess allowing traders to secure a few orders, and early stage processing mills having virtually exhausted their stocks.
A jump of 25-50 cents for most Merino fleece types on the first day provided a positive start, which was then followed up the next day when Sydney joined the proceedings. Further increases were seen for the better-quality wools; however, the volume of poor-quality wools eventually took its toll and prices in Fremantle eased back on the AWEX MPG’s indicators such was the volume of high mid-break wools on offer. The final session of play on Thursday again saw the best quality looked after, but the poorer ones dispatched to the fence.
Overall the week was a positive result, probably a little more than expected by many, with an increase of 48c in the AWEX EMI. Illustrating the fickle nature of currency markets the USD level increased by 25c, while the Europeans only saw a 3-cent increase. There would always be a degree of restocking to occur after the three-week recess and some exporters were lucky enough to avail themselves to some cheap currency when the Aussie dollar dipped briefly below .7000 during the break.
New business, however, was difficult to find in the important Chinese market where ongoing concerns about the economy linger. An improvement in relations has been confirmed at recent talks in Beijing with American trade negotiators, but perhaps not the ‘breakthrough’ that some were hoping for. Progress does seem to be happening with a realisation that the issue must be solved for the good of both sides. This improvement in relations should see a strengthening of the RMB, meaning imported Australian wool will be less expensive and also a lift in confidence among the trade.
Typically, government uniform orders in China provide many mills with a base load of work, whilst they top up with other orders. At present the uniform activity is there, but the quantities have been restricted with reports that some organisations are currently only providing one new uniform for each worker compared to the usual allocation of three. It is relatively easy for the Chinese government to pull the levers like this to stimulate more activity within the economy, but presumably they will wait until the picture with Washington is a little clearer.
Often the Chinese New Year sees the implementation of new policy directions or strategic moves and many will be hoping that this year is no exception. The wool industry in China is struggling with a lack of direction at present and some support from Beijing would be most welcome. In the past three years life for a wool processor/manufacturer has been very good indeed, with plenty of export demand, but more importantly domestic demand that has been evolving and growing. High prices for Australian wool, coupled with slowing Chinese demand, and of course the uncertainty borne out of the trade dispute has forced many mills to blend poorer, cheaper wools together in an effort to meet the customers lower price point.
This has resulted in the inevitable rejection for quality of products, and nowhere more so than in the once fabled double-sided fabric. Previous seasons saw literally everybody jump on the band wagon to produce this ‘new’ product and the carding sector and short wools in general soared as a result. However, the goose may have been well and truly cooked now, with so much poor-quality fabric lying around rejected by customers that nobody knows what to do with it. It will no doubt find a home eventually, but it paints a vivid picture of how to destroy a fashionable item by thinking that cheaper, poorer quality will increase sales volume. The worsted industry does not currently have such an extreme example but nevertheless the message needs to be heard and those thinking that using a few bales of crossbred to bring the price down risk losing a lot more in the long run.
Similarly, the market signals for greasy wool in Australia, which have been quite ‘loud’ this season when it comes to processing value, and therefore discounts for less desirable wools should be taken note of. Simply hoping, or demanding that short Merino prems below the worsted combing length, should reach the same basis as last year will not happen with the current mix of products being consumed. The inevitable price resistance in the wool pipeline, not because of the price level, but more so because of the length of price increase that the industry has endured is playing out with customers asking for lower prices, and better quality at the same time. If the industry is able to stand its ground and maintain quality while holding price levels it should be possible to weather the storm.
So many things are running in wool’s favour on the marketing and consumer front, that if we can just deal with the surplus of poor-quality wool, and maintain price stability for the scarce volumes of better end wools the wool industry should be able to keep moving onward and upward in the longer term. Most other apparel fibres are currently heading south, however the price correlation between merino wool and the likes of cotton and polyester has been negligible for the past couple of years, so hopefully it stays that way and good quality merino wool does its own thing