JUST a bit more than a 'dead cat bounce' last week, after the previous savage falls saw the wool market leap out of the blocks on Wednesday morning in Sydney and Melbourne sales.
Following on from the better tone towards the end of the previous week, sales staff kicked into overdrive on the weekend in China and across the globe as demand for greasy, wooltops and yarn began to appear.
Most early stage processors had slammed the bag by Monday afternoon, not wanting to risk selling too much. It would appear that some had indeed sold a little more than that, and buyers were obviously given instructions to get in quick to fill orders.
From the first bounce, the auction market kicked with the wind in Sydney and Melbourne with huge increases in price for virtually every type of wool. Fremantle followed the tone by adding more than 200c to the price of medium Merino fleece as a meagre 1250 odd bales was all that was available in that centre. At the end of a frenetic day 130c had been added to the EMI price in a single day's trading.
Wednesday evening around the globe saw WeChat go into overdrive as the Australian exporters and Chinese buyers scrambled to make sense of the day's events, and work out a strategy for the next day. Further business was still being concluded into China as mills sought to cover sales made and perhaps try and get ahead of the curve. However, most were content to sit back and watch the fireworks.
With only Melbourne and Fremantle taking the field on Thursday and only 12,000 bales between them, the market again shot up. Medium Merino fleece added another dollar in Melbourne, while Fremantle was a little more circumspect with rises generally limited to around 50c. In a week of new records, AWEX's Eastern Market Indicator closed up by a whopping A170c to close on 1535c, US125c, and Euro115c. A long overdue correction after the continual falls in August, and one which had been expected, but in the space of a couple of weeks or a month, not in just two days.
AWEX's Northern Market Indicator closed up 126c on1534c. The 17 micron indicator closed on 1930c, 18 micron 1853c, 19 micron 1755, 20 micron 1682c, 21 micron 1645c, 28 micron 953c, and 30 micron 813c.
The optimists expecting the uptrend to continue when auctions resume again will probably be slightly disappointed.
The optimists expecting the uptrend to continue when auctions resume again will probably be slightly disappointed. With the usual tell-tale signs of Fremantle closing at lower levels than the east coast, and South Africa who have resumed auctions again, also quoting slightly lower levels than the Melbourne close, most are predicting a settling down to the levels of Wednesday in the short term.
The inevitable wool market volatility could surprise, especially given the Nanjing Wool Market conference coming up in Shandong on September 20. Wool sellers and buyers from around the globe will get together and analyse the year past, and try to make sense of what the next season may bring. Often before this annual event the market is firm as Australian exporters take a bit of stock to sell at the conference, or in some years the market has a flurry just after the conference when exporters have sold a large quantity. Given the torching some have had in the last week, business is likely to be more restrained and cautious.
There will be plenty of soul searching and analysis of the current demand situation no doubt. With more positive and conciliatory signals coming out of both Beijing and Washington around the tariff issue there is cause for some optimism in that space. Recent data shows that despite Mr Trump flogging the Fed Reserve to reduce interest rates, the US economy is faring remarkably well. The European Central Bank is trying to follow suit, with a 10-basis point reduction in interest rates, to negative 0.5 per cent, and announcing a bond buying program - otherwise known as QE or money printing. If the German parliament agrees to allow their government to run a stimulus program outside of the official budget, the main engine room of the European economy could crank up a few gears.
Add to this the rather aggressive stimulus program being undertaken in China with cuts to the reserve ratio for banks, and mooted interest rate cuts, as well as the BRI infrastructure spend and consumers should begin to see enough progress to keep the wheels turning. This will hopefully allow the wool market to climb a little higher and qualify for a recovery. It has not yet reached the 50pc retracement of the fall, which is normally required to classify it as a recovery, rather than just a blip-up in technical terms.
The window for the Chinese domestic processing season has now closed, however, and besides a brief spurt of fake fur fabric orders last week, most people in China are now focused on export or domestic sampling. In November the Chinese mills generally start to ramp up purchasing through until April for the next autumn/winter selling season, so it may be a rather benign period coming up. Having said that, Merino wool is much more trans seasonal these days, and many latter stage mills have made virtually zero purchases in the past three months, so stocks of tops and yarn are very low in some warehouses.
This may be enough to sustain the market for the next couple of months given the ongoing supply shortage from Australia, and the fiscally induced blockade in Argentina. Those mills who purchased some of their requirements over the past two weeks are no doubt patting themselves on the back, whilst those who held back and only purchased the bare minimum would be, or should be chastising themselves. There will hopefully be enough latecomers to the party to continue the momentum, although everyone in the industry would appreciate a little more of a gradual change than what we have witnessed over the past two months.