Malware, not coronavirus stops wool sales

This shut-down of the computer network inexplicably halted auctions, payments and transfer of data across the entire wool industry.

In a nut-shell the industry was left high and dry by the hackers and their malware virus, after having survived the initial onslaught from the coronavirus.

There was no auction held anywhere in Australia with only a few lots changing ownership on the Wooltrade offer board, and a handful of futures contracts being exchanged on Riemann.

AWEX's Northern Market indicator remains on 1618c. The 17 micron indicator is on 2082c, 18 micron 1945c, 19 micron 1839c, 20 micron 1813c, 21 micron 1798c, and 28 micron 894c.

Hopefully, once the systems are back up and running, the industry will have a further look at measures to address the vulnerability of using a single platform and not having a clear back-up plan in place in case of a technical malfunction.

The bodies responsible for running the auction system and data transfer were reportedly offered an alternative solution later in the week which would have enabled the transfer of data from some brokers to the majority of brokers, and exactly why they did not take advantage of this offer is still being questioned by many in the industry.

Before the outage the mood in the trade was very bullish, and most had expected a firm to dearer market. Then, in a cruel twist for the market, arguably the second most influential place in the world for wool, Northern Italy became a coronavirus hotspot with an outbreak causing bleak headlines and plenty of angst.

Typically, the rumour mill was in overdrive with a 'query' quickly becoming turned into an unverified social media 'fact'.

"Biella has been shut down with the virus" was one such comment made during the week when there have actually been zero outbreaks in that town, nor any restrictions or reduction of workplace capacity at all.

Milan, however, does have some restrictions and the virus did cause some inconvenience to those who normally attend the fashion parade with this year's event being held 'in camera'.

With further outbreaks of Covoid19 being found in Korea, along with the previous outbreak in Japan, the Chinese processing fraternity were beginning to wonder if they were jinxed.

A list of export destinations for scoured, carbonised and wool tops and yarn will usually list Japan, Korea and Italy close to, if not at the very top of the list.

Just when factories in China had been madly cranking up production again, mostly working 12 hour shifts to cover the shortage of workers available, they were dished up this bad news.

The wool industry is nothing if not resilient though, and the long lead times is something which works in our favour. People know that their customers will be making purchasing decisions in May and June, about what number and style of garment to order for the retail shelves in September, so there is still a need to keep the pipeline full in the interim.

Even if the virus situation goes on for another month or two there will come a point when the sky is clear and people suddenly start hollering for their fabric and yarn orders.

The more astute operators know that the pipeline must be kept topped up, and that there is still plenty of work going on despite the media headlines.

The timing of the virus outbreak could have been worse for the wool industry in a sense. Being Late January and February, the majority of the autumn/winter selling season is actually over and retailers are mostly in discounting, clear out mode for woollen items, and preparing the shelves for the Spring/Summer collection. So, when all the dust settles maybe the drop in retail sales for wool may not be as bad as for other fibres.

The alternative, second grade apparel fibres like cotton, polyester and nylon are not showing a lot of movement in their respective spot markets but the futures market for cotton has been hammered in recent days.

As Tobin Gorey from CBA reported in their Ag Commodities Daily report last week, the New York May contract has now fallen by more than 8 per cent and given up any gains made from the US-China trade deal.

Unlike other agricultural commodities which are used to make food, Gorey highlights that cotton is used to make durable stuff like clothing and manchester. This distinction is important because consumers and businesses can easily delay buying more stuff when worried about cash flow or otherwise uncertain about the future.

According to Gorey, cotton catches the broader economic swings more than other agricultural commodities. The other worry for cotton he says, is that momentum has now certainly stalled and perhaps turned negative.

Wool, despite the trans-seasonal developments over the past 20 years, is still seen by many as a winter fibre, thus the bulk of the ordering and consumption is still geared toward that autumn/winter calendar.

So, unlike cotton which tends to be more prevalent in spring/summer collections, and thus should be hitting the shelves now and being sold, perhaps the seasonality of wool will allow it to get through the virus situation without too much lasting damage.

Thus far the price of wool has not been overly damaged by the virus outbreak and seems to be in a wait and see holding pattern. That's quite remarkable given the dominance of China in the early stage processing and also consumption of the final product these days. But, the timing of the outbreak as discussed, the low supply and further restriction by grower withdrawal and pass-ins and the belief of the industry that customers will return simply because the product is that good, have all contributed to a steady as she goes price movement.

All the other issues still going on around the world in terms of pollution, global warming, sustainable living and ethical manufacturing have not gone away, and merino wool ticks all the boxes in regard to these issues, so it will still be a preferred choice by consumers who care.

- Bruce McLeish is Elders northern wool manager.

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