IT was a very solid wool market again last week across the micron spectrum and across the nation. The market faced up to a very small quantity in Sydney, the smallest Merino catalogue in 12 months according to AWEX.
In Melbourne buyers were able to flex their buying muscles a little more and feast on a selection of stylish Tasmanian wools in their feature sale for this season. Fremantle buyers had to scratch and scrape to get any quantity of good wools, but average top making style wools were in abundance and the market was very solid.
The week closed out with all three selling centres finishing on a positive note after Thursday’s auctions with positive numbers next to every micron indicator down the page including the cardings. AWEX’s Eastern Market Indicator rose 24c to 1968c for the week as the supply situation maintains the central focus position around the globe. The degree of caution coming from the processing trade is evident however with no single area of the clip racing away, but buyers leaving no stone unturned looking for value either.
AWEX’s Northern Market Indicator closed up 16c on 2011c. The 17 micron indicator closed on 2587c, 18 micron 2490c, 19 micron 2342c, 20 micron 2306c, 21 micron 2270c, and 28 micron 1080c.
Chinese mill workers are slowly drifting back to work from their Lunar New Year festivities and the majority of mills will start to crank up machines again on Monday. Restarting a scour, combing mill or spinning mill after being shut down for a fortnight does take a little while as machinery needs to be brought up to operating temperature, glitches fixed, and new product fed all the way through the process.
Greasy wool obviously sits waiting at the mill doors, from purchases made in early January and there is basically enough wool in the pipeline for the next six-week period, but purchasing managers will be carefully watching their sales team in order to plan ahead. The processing season is normally in full swing at this time of year as product moves through the pipeline for garment completion around May/June, ready to be placed on the shelf in August/September.
However, a lot of mills are currently wondering what type of wool they will be processing in six to eight weeks time, once the on-hand orders have been completed. Underlying demand is solid, although quantities are limited – a bit like supply - but for a processing mill or a trader, it is difficult to latch onto a decent sized order to keep machines busy.
A lot of mills are currently wondering what type of wool they will be processing in six to eight weeks time, once the on-hand orders have been completed.
The more astute latter stage processors are beginning to look around at who can fulfill their requirements over the next few months as most early stage processors adapt more and more towards a just in time approach. The slowing Chinese economy is feeding back into the wool industry by way of more hesitant order placement, which consequently makes early stage processors and traders nervous about making decisions on purchases of greasy wool. They know that they need to keep machines running, but not having the usual base load of orders that would be considered normal at this point of the season is causing some angst.
The mood around the world textile trade is generally optimistic but people are still digesting the 10pc increase in price which has occurred since November, and there are more than enough negative headlines out there to make them wary. Hence, we see the continued divergence across the wool spectrum to encompass crossbred wool.
Given that there is basically no supply of broad Merino for mills to use as a defensive play, many are turning to the previously maligned crossbred wools to run machinery on a lower risk, lower capital product. There is a limit when crossbred ceases to become the cheap alternative, and historically this has been when 28-micron is more than 50pc of the 21-micron price. The market is rapidly approaching this level, but if Merino orders are not forthcoming we may sail through it temporarily as well.
And of course, the industry has limited options to purchase merino wool over the next four months anyway. The supply is rapidly dwindling in Australia on the normal seasonal trend, minus the 15-20pc drought reduction and South America and New Zealand have put up the sold-out notices already.
South Africa does not offer large quantities at this time of year, and an outbreak of foot and mouth disease over there will complicate exports for a while, at least until it is officially contained. So, one would understandably question if there is in fact enough merino wool around to satisfy all the machinery in work at present. This should be great news for Chinese, Russian and European growers who will begin shearing in May/June.
We do need to sell the garments that are currently being made, and those that will be in the pipeline over the next four months as well, and despite the recent bout of negative growth adjustments perhaps it is not as bad as some would have us believe. The trade negotiators are currently meeting in Beijing and President Trump has indicated that the March 1 deadline could be flexible given that the two sides are making progress on trade talks and potentially close to completing a deal, according to a recent HSBC report.
It seems that the fence will be built on the US-Mexican border, and it also seems that the dog fence in Australia will be renewed. All the reports from Idea Biella and Premier Vision over the last couple of weeks have been quite positive, and the International Woolmark Prize will generate plenty of media coverage when it is announced shortly in London. So, despite a measure of doom and gloom, there are also plenty of reasons to support current prices.
- Bruce McLeish is Elders northern wool manager.