Positive wool market gains another 5c | Elders

Positive wool market gains another 5c

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MARKET WATCH: Last week saw another slow and steady wool market with a positive tone still evident.

MARKET WATCH: Last week saw another slow and steady wool market with a positive tone still evident.

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Last week saw another slow and steady wool market with a positive tone still evident.

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LAST week saw another slow and steady wool market with a positive tone still evident, although buyers seemed to ease back a little towards the close of the selling week as Asian holidays loomed.

AWEX’s Eastern Market Indicator rose by 4c to 1927c in local currency terms and eased by a similar amount in all foreign currencies. As has been the case all season the best lots sold very well, with the select few lots reaching Italian specifications gaining a premium of a $1 or even $2 over the less desirable lines of wool of the same micron.

AWEX’s Northern Market Indicator closedup 10c on 1970c. The 17 micron indicator closed on 2538c, 18 micron 2432c, 19 micron 2313c, 20 micron 2277c, 21 micron 2245c, and 28 micron 934c. 

The ongoing drought conditions are still affecting the quality of the offering in the main, and under the current demand conditions buyers are continuing to be selective with their purchases.

The knitwear sector is maintaining its momentum for the traditional skirting types, but the overall woollen sector continues to search for momentum with the carding wools down 20c or 30c for the week.

The stop-start demand for crossbred wools rolls on, with the odd order of fake-fur coming into the market, creating demand, being filled and then disappearing again. With the current “high risk” price level and the pending Asian holidays most of the trade seemed happy to finish the week with square books, rather than speculate and take a bit of stock to start the next box, resulting in a tail-off towards the end of the week.

Sitting back and looking at the current prices, despite a fairly ‘quiet’ backdrop from the demand side of the equation, the charts still shows a very positive scenario. With the exception of 17 micron all Merino fleece indicators are sitting at the high end of the 95th percentile – meaning that prices have only ever been higher than now 5 per cent of the time over the past 28 years back to 1991.

Yes, there are always those who argue for inflation adjustment, and ‘what about the costs’, but nobody can deny we are in a pretty good place. There are not many other commodities or rural enterprises that can boast a bull run, now entering its fifth year.

There are not many other commodities or rural enterprises that can boast a bull run, now entering its fifth year. - Bruce McLeish, Elders

As China breaks for the Chinese New Year or Spring Festival, Japan recognises ‘setsubun’ or beginning of spring, Korea closes down briefly for Lunar New Year and Vietnam celebrate Tet, the Vietnamese New Year a fair chunk of the buying power is missing from the Australian wool market. It doesn’t mean no orders will be placed, as mobile phones in Asia are never switched off, and they have factories to run after the holidays so wool needs to keep flowing along the pipeline.

However, there will less response than usual, and some purchasing decisions will be on a ‘set and forget’ basis or just the minimum required. As usual the European and Indian fraternity will set up a notch to take the opportunity whilst the main buyer is relatively absent.

So, it would be reasonable to expect a sluggish week or two coming up, but not a lot of downside apart from the normal week to week fluctuations of 20c or so. In the worst-case scenario of a 20c to30c drop in USD terms, all of the major merino categories would still sit on, or above the long-term trend lines, which began to rise back in October 2015.

Such a long-term trendline is not easy to break, and given the shortage of supply is it unlikely that it will happen anytime soon. There are plenty of participants in the wool industry rolling along, producing high quality merino yarns and fabrics and delivering them to clients who are able to sell their garments to eager consumers. Consumers who want to do their bit to save the planet by purchasing an environmentally sound product, or in many cases simply consumers who just want a functional, high quality, good value item rather than something that will wear out or look daggy after one visit to the washing machine.

Of course, these consumers need to have money to make the purchase in the first place, and that means having a job and enough cash left over after paying for life’s necessities. So global economic conditions remain increasingly important to the wool industry if we are to maintain this bull run of prices in the longer term.

Recent data showed that China’s economic growth cooled in the fourth quarter to 6pc according to a CBA market research note, under pressure from slowing domestic demand and the negative impact of US tariffs. However, as Chris Wilcox pointed out in last week’s NCWSBA newsletter a growth figure of 6pc of today’s Chinese economy is huge compared to the 10pc growth when the economy was only half its current size back in 2010.

Progress does seem to be being made in the US-China trade negotiations, with senior figures from both sides to meet in Washington next week in a prelude to the countries’ presidents meeting soon thereafter. Of course, there will be lots of ‘toing and froing’ as in all negotiations, and Mr Trump will be keen to get some wins on the board after having his wings clipped recently over the wall. Perhaps he can rebuild our dingo fence instead.

China will also take a positive approach to the negotiations, after acknowledging that the trade war has hurt their economy and they need to find a solution quickly. The Chinese New Year also usually heralds a swathe of new policy announcements from Beijing for the year ahead, so we look forward to some positive statements in that space.

- Bruce McLeish is Elders northern wool manager.

RELATED STORY: ‘Wool prices rise despite big 52,000 bale sale’.

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