Wool market moves 'sideways' to close on 1946c | Elders

Wool market moves 'sideways' to close on 1946c

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MARKET STRENGTH: There were a few ups and downs with AWEX's Eastern Market Indicator closing on 1946c.

MARKET STRENGTH: There were a few ups and downs with AWEX's Eastern Market Indicator closing on 1946c.

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There were a few ups and downs with AWEX's Eastern Market Indicator closing on 1946c.

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ANOTHER very similar week in the Australian wool market again last week, which thankfully meant no dramatic surprises, but price activity more or less meandering along.

A few ups, and a few downs on the overall market quote sheet saw AWEX's Eastern Market Indicator figure close 16c lower on 1946c in Australian dollars, with a similar drop of 25c in US dollars being recorded.

AWEX's Northern Market Indicator closed down 14c on 1993c. The 17 micron indicator closed on 2513c, 18 micron 2437c, 19 micron 2316c, 20 micron 2293c, and 21 micron 2279c.

With the market sitting pretty close to $25 for 17 micron, and better than $22 for the few 21 micron lots around, having a market moving sideways is a pretty good thing.

The last thing anybody in the trade wants at present is for the market to be booming and creating a bubble, only for it to inevitably burst again.

Every grower selling wool at the moment is getting very handy returns that make the wool growing enterprise a profitable one - if it would only bloody rain! There is some rain about thankfully with parts of Queensland finally getting a decent drink and hopefully a bit more on the way for other parts of the dry parched land.

In the auction rooms across the nation last week buyers showed continued support for the better tested wools, as they have done all season, while the lower yielding wools continue to pose a challenge for exporters.

Freight is one issue, as the client must pay to ship a fair few kilos of dirt in the container along with his/her wool, but also scouring mills in China will obviously slug them an extra charge to scour the low yielding batches of wool to offset the higher waste disposal charges.

Once the wool is washed however, the problem disappears and the majority of this dry and dusty wool does have quite good underlying specifications as a result of the prolonged dry seasonal conditions.

It is only where the seasonal conditions were good for a while, then turned bad that the high mid break, tender wool has been apparent. Wools coming from the pastoral areas of South Australia/NSW tend to be very sound, if finer and lighter cutting as it has been dry for such a long time.

The processing trade has been doing a sterling job coping with this low yielding clip - although arguably they don't have too many options either - when a few short years ago and wools less than 60 per cent were avoided by almost everyone.

AWEX is reporting that the yield should bottom out by the end of April and start to improve from there, so hopefully the discounts should also ease a bit then as well.

On the demand side of the equation not a lot has changed either with China and the rest of the world are still keen awaiting a positive outcome from the trade talks.

The last thing anybody in the trade wants at present is for the market to be booming and creating a bubble, only for it to inevitably burst again. - Bruce McLeish, Elders

The US delegation is currently in Beijing, and a further round of discussions has been planned for next week back in Washington. At least they are increasing their frequent flyer points if nothing else. But snippets coming out of the meetings do continue to sound positive with a Reuters report saying during the week that China has made fresh proposals on a range of issues that go further than before, particularly in regard to intellectual property protection.

A positive outcome is potentially still a month or so down the track and that will obviously be too late for the current northern hemisphere retail season, but may give buyers a degree of confidence about the 2019-20 season that is missing at the moment.

There is a real hesitation at the far end of the chain to lock in many orders, and that hesitation flows back down the chain to early stage processors and eventually the auction room. So, we get a market that meanders, and micron categories all tend to bunch up, and people buy just a bit of this, and a bit of that with no clear plan. That sounds very much like the Brexit saga at present, with eight options put on the table and none of them getting up.

Central banks around the globe continue to mutter about further stimulus being required to maintain global growth. China has poured a significant amount of fuel onto the economy there, but it is yet to take hold and increase the activity in any measurable form.

These stimuli often take a while to flow through but Beijing is no doubt watching proceedings very carefully. In a classic case of the tail wagging the dog, the NZ Reserve said they would probably drop interest rates in their next move, and the Aussie dollar immediately tumbled as analysts now expect the RBA to follow suit.

Consumers around the globe are actually either not taking a lot of notice of the economic picture, or being very resilient because consumer confidence as measured by the boffins is actually still very good compared to previous years. As Chris Wilcox pointed out in the NCWSBA newsletter last week consumers in most of the key wool market countries remain confident.

Unfortunately, this has not translated to great retail sales figures over the past winter season, but in the Merino apparel sector there are plenty of good news stories. As an industry we operate further and further up the pyramid, and now comprise less than 1.5pc of total apparel sales. So, if the high-end sector is doing well, but the bulk commodity is struggling, it is still possible that merino wool garments are doing okay and not being reflected in the broader statistics.

Certainly, the people using good quality Merino wool at the early stage of the pipeline appear to be more optimistic than the rats and mice producing a generic cheaper product. All anecdotal stuff, but it could be cause for more optimism than pessimism for the coming season. The outlook for the next few weeks would appear to be slow and steady with not much change either way, until we get that trigger from either the demand side or supply side. The wool industry doesn't usually remain becalmed for too long, but for now we watch and wait.

- Bruce McLeish is Elders northern wool manager.

RELATED STORY: ‘Australian wool market: 19.5 micron fleece making $23’.

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