A correction everyone expected for the wool market occurred last week, to compensate for the exuberance of the previous week. By the end of the week, though, it was more of a steadying effect than a correction with the leading indicator only falling by 11 cents in both local currency and USD. The reasonably large offering gave buyers the flexibility to moderate their purchasing and of course react to the extreme jump of the previous week after the FMD scare in South Africa.
After mixed signals from China over the enforcement of the import ban of Cape wool, the trade was initially circumspect and most Merino fleece types eased by 40-50 cents before recovering slightly to end the Melbourne only sale on Tuesday around 30c cheaper. On Wednesday the other two centres joined in and played a bit of catch up while Melbourne prices were slightly cheaper on the back of a poorer quality offering.
The final selling day for the week saw superfine Merino prices in Sydney continue to increase for the high-quality lines on offer, and a consolidation of Merino prices across the country. Interestingly, as buyers search for best value the key 21-micron indicator is within 5c in all three auction centres, which is generally a sign of underlying strength in the market.
Crossbred wools enjoyed another good week, although some poorly prepared clips lowered the indicator’s colours. With buyers now paying above $10/kg for 28-micron wool, which not long ago was considered the break-even point for 21-micron, the time for ‘throwing it all in’ is probably over. At $6/kg the cost pressure of extra shed staff was obviously there, but at current prices the market is giving growers a clear signal that traditional preparation is rewarded with higher prices.
The carding wool segment continues to meander along showing no signs of climbing back to the lofty prices of this time last year, but neither do the current prices appear to be under threat. The carding indicator is around 50 per cent of the average Merino fleece price, which from a technical perspective is comfortable, and it makes it easier for those in the cardings trade to do their numbers too.
The New Zealand market continues to gain strength as has been evident since the Chinese New Year. Some of the demand for NZ wool stems from combing mills trying to reduce their exposure to Merino types, but also genuine demand for carpet wool types as they have become cheap compared to the synthetic alternative. In South Africa the auctions resumed, although with probably even more uncertainty about the possibility of new shipments being allowed to be cleared into China. The market was surprisingly well supported by European and Chinese interests and fleece types more or less maintained their previous values with only a very small percentage failing to sell in what was a ‘double-up’ sale week.
So, sales of wool in the southern hemisphere seem to be going quite well, which is encouraging, but not altogether surprising given that we are in the midst of the peak processing season for mills. The challenge is obviously to maintain this momentum for the remainder of the season and into the future. Demand is still fairly tepid, but moving forward as people, (consumers) await outcomes of various events across the globe. In Hanoi last week it seemed that Don and Jung-un had a differing opinion about what denuclearisation actually meant. Hopefully someone will provide them with a translation app shortly so they can get back on the same page.
The Brexit saga drags on with the smart money now backing the seemingly only viable option on the table, being to delay the decision. Timeless test matches are a thing of the past, and the UK public surely want a quick and decisive conclusion to this boring back and forth talkfest. Certainly, the majority of the European community are well and truly fed up with the situation and want to move forward, with or without the UK in their team.
The other major issue, and perhaps of more significance for the wool industry is the ongoing trade discussions between China and America. Despite the enthusiasm of Mr Trump in the Twittersphere the reality is that any agreement reached needs to be ticked off by the US houses of parliament. So, more sales of soybeans, or the “soybean solution” is not going to cut it. Both sides of the issue desperately want to find a resolution, but it also needs to be verifiable and enforceable, not just general platitudes about opening up market access.
Structural reforms to the Chinese economy are what the world is after, and the US has been appointed, or self-appointed to the position of spokesperson for everybody. However, changes to a $14trn economy do not happen quickly. As China pumps more liquidity into the economy to support its slowing growth, the majority of these funds end up with state owned enterprises where banks feel safer to lend, which is diametrically opposed to the opening-up and privatising of the economy that China and the World seek.
Chinese consumers are watching carefully to see how this plays out, and for the moment being very considerate when it comes to a purchasing decision. If significant progress is not made in the next month on this front it will be a long nervous wait for the processing/retail fraternity with stocks in the pipeline destined for sale in September.