Wool prices rise despite 52,000 bale sale | Elders

Wool prices rise despite big 52,000 bale sale

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MARKET STRENGTH: The largest volume of wool sold at auction since April 2018 did not trouble the market last week.

MARKET STRENGTH: The largest volume of wool sold at auction since April 2018 did not trouble the market last week.

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The largest volume of wool sold at auction since April 2018 did not trouble the market last week.

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THE largest volume of wool sold at auction since April 2018 did not trouble the market last week, such is the low volume of greasy stock in the pipeline and forecasts of limited supply over coming weeks.

A total of just under 52,000 bales were offered to the trade during the week and 94 per cent of these bales found new owners. Price movements fell into three broad categories with the best Merino fleece and pieces and cardings rising strongly, the poorer Merino fleece was again neglected and the volumes dragged on the indicators, while the crossbred sector had another stellar week to add 50c.

Overall AWEX’s Eastern Market Indicator increased by A13c to 1923c (US4c and Euro21c) but depending on which area a buyer was operating in, the end of week results may have looked very different.

AWEX’s Northern Market Indicator closed up 12c on 1960c. The 17 micron indicator closed on 2523c, 18 micron 2407c, 19 micron 2304c, 20 micron 2256c, 21 micron 2225c, 28 micron 941c, and 30 micron 739c.

Merino fleece buyers continue to chase quality with a widening disparity between both ends of the spectrum. Knitwear activity appears to have kicked up a gear in a late season flurry, while the carding market has ‘risen from the dead’ with much better competition than in recent times. Crossbred wools also found another leg as mills search for cheap, low risk fodder, but price resistance for these types is not far away.

Many Chinese mills and traders are beginning to focus on their forthcoming holiday period, which for most will begin on January 25. However, once the mills restart, even though it is often a slow wind-up to full production as workers drift back to work quite slowly from February 11 they will need more greasy wool, and those wools bought this week, under normal shipment times will arrive in China about then. So, while the Chinese trade are reporting a little better inquiry this week, they are still hesitant to purchase more than their immediate requirements given the continued high prices. But, for a production mill in China that is continually feeding mill machinery, topping up with greasy wool is a never-ending task – a bit like what many growers in Australia are going through trying to fill water tanks at present when thirsty sheep keep emptying the trough in this hot weather.

Merino fleece buyers continue to chase quality with a widening disparity between both ends of the spectrum. - Bruce McLeish, Elders

Availability of funding, not just in China, but all over the world is becoming a drag on the wool market again. As the Chinese government endeavours to clean up the shadow banking industry many businesses are finding it increasingly difficult to secure enough funding for daily operations. For an “average” sized mill in China which buys its own greasy wool suitable for the product they are making and sell either wooltop or yarn the requirements are considerable.

A medium sized combing mill turning over 8000 tonnes/year, and there are at least two in China three times this size, needs to buy around 1300 bales of wool a week. At current prices for 19.5-micron fleece this will amount to near enough to $3.5m each week that needs to be paid generally within seven days of fall of hammer. The problem is that this wool needs to be funded somehow while it is being shipped to China, four weeks, in stock for processing, another four weeks, and then probably another four to six weeks while the product is being delivered to the next client along the chain, who possibly demands further payment terms. So, the numbers quickly add up to a sizeable amount of finance required to run an average sized woolen mill. When a lender looks at the historical volatility of wool prices, the current near record price level and the slowing Chinese economy it is little surprise that funding is an issue. A similar issue no doubt exists for many exporters in Australia, and the recent Banking Royal Commission won’t have done any favours there either.

In Europe, mills have one eye on the economic situation which is not all that enticing, let along the ongoing Brexit saga, but most are also attending the Spin Expo trade show in Paris this week, or the Pitti Filati knitwear exhibition in Florence next week. Although many Italian mills are reporting that turnover has been reduced this season by the order of 10pc, it hasn’t stopped them creating new and innovative products and designs to entice more consumers into the world of merino.

Denim, either in a wool blend, or made entirely from wool to look like denim is very evident. One of the world’s most popular fabrics is now readily available, albeit at a premium price, without using the water hungry, chemical laden cotton fibre. Provenance continues to be a major theme in the exhibitions with processors keen to build a story about the fibres being used in their product. Consumers of so many products these days want to know more about the product’s origin and wool has a great story to tell if we can just get some clear air time around all the other garbage being talked about.

Superfine: The Italian buying fraternity continue to make their presence felt when lots are suitable for their needs and will continue to do so for the next month or so until the offering runs out of ‘their’ wool. Other markets continue to buy a modest amount of superfine merino, but the industry is being challenged by the increased volume of drought affected superfine this season.

Medium Merino: So hard to find this season with just a handful of 21 and 22 micorn wools on offer each week, and practically zero 23-micron merino. Argentina has already sold around 80pc of their current clip, and South Africa struggle to offer anything broader than 21 micron in full length fleece, so it is very unlikely to see this segment going down significantly in coming months.

Crossbreds: Over the past three months we have seen a spectacular rise, a crash of equal proportions, and now another reasonable rise. It is going to be a bumpy ride.

- Bruce McLeish is Elders northern wool manager.

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