COVID-19 continues to bite into wool market | Elders

COVID-19 continues to bite into wool market

Sheepmeat
A stronger Australian dollar had a negative impact on wool prices.

A stronger Australian dollar had a negative impact on wool prices.

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A stronger Australian dollar had a negative impact on wool prices.

Aa

AFTER another week of COVID-19, with differing infection results around the globe in local currency terms, the taste was not pleasant and the Australian dollar gains showed up as a negative on local wool prices.

However, in both US dollar and Euro terms the market was unchanged. Even a very small offering of only 22,000 bales was not enough to spark a buying frenzy.

The market eased by 3.7 per cent, of which more than 3pc was attributable to the currency movement.

Nevertheless, buyers were reticent to go too hard on anything except the best style wools and most major Merino fleece types eased by 60-80c.

Cardings continued their downward drift, and crossbreds were also lower, but appear to be running out of room on the downside. Until a significant recovery in the demand side of the equation occurs the market will tenuously hang onto its current support levels.

AWEX's Northern Market Indicator closed down 48c on 1259c. The 17 micron indicator closed on 1697c, 18 micron 1518c, 19 micron 1414c, 20 micron 1362c, and 28 micron 661c.

In US dollar terms the market rests almost exactly on the previous level it rebounded from back in 2015. Whether it can hold and steady at this level obviously depends more on demand than supply at this stage, as decreasing the auction volumes further would seemingly not have any effect on sentiment.

Recently the wool industry has had a bit of an oversupply issue, despite the drought effects which are still lingering. Demand had fallen away overnight with the COVID-19 shutdown in China, then the subsequent shutdown in Europe which reverberated back to Chinese processing mills who were just reopening and getting back on track.

New Zealand slammed the door for everything in every industry including wool on Jacinta's orders. Argentina like most of South America closed everything down without really knowing why or having a plan to work things out. South Africa hit the panic button and closed everything down hard including sales of tobacco and alcohol which is putting their stay-at-home wool buyers under a lot of pressure.

In Australia things have been able to continue, at a distance, and back-up plans put in place with electronic auction systems also being dusted off and finessed.

Growers were given a stern talking to by their brokers about offering wool with unrealistic price expectations, and most have heeded the message and kept a fair bit of that in the shed.

So, balance has been restored but it is a very long plank and the see-saw can tip quite violently as we all know. In the oil industry where they have probably taken the mantle of 'most volatile commodity' in recent months, it has taken a while and no doubt a lot of effort to reduce supply.

A very disparate bunch of producers across the globe have been selfishly churning out oil, hoping that OPEC+ would reign things in enough to maintain the way of life to which they have become accustomed to. Reality has dawned on them at last, and producers outside of OPEC+ are also reducing production of the sticky black stuff, realising that they were fast heading towards overflowing storage facilities and price Armageddon.

Now, as CBA analyst Tobin Gorey said "the idea of less supply and more demand proves to be just as powerful as the reality of more supply and less demand".

Wool is not there just yet, with people still focusing on the demand reduction and in the main, they have barely noticed that supply has reduced significantly.

The European shudders are still causing ripples in the Chinese pond. But perhaps the waters will calm again next week. After a balmy weekend with temperatures in the mid-20s across Europe, where they are finally allowed out of their apartments for the most part, factories will be turning on the lights, issuing masks and gloves to the returning workers and getting at least some things moving again.

If this is enough to provide a sense of confidence to Chinese early-stage processors we may see the see-saw stay on an even plane rather than tilting down where we do not want to go.

If this is enough to provide a sense of confidence to Chinese early-stage processors we may see the see-saw stay on an even plane rather than tilting down where we do not want to go. - Bruce McLeish, Elders

Currently Chinese mills are more than a bit unsettled about where-to-from-here. The promised, or expected government stimulus is not flowing through to the textile industry yet, and although banks have been told to be friendly, the cash-flow for mills who have been buying greasy wool but not shipping many tops out is getting tight.

There are no signs of significant stock build-ups, but production has been scaled back again in some cases until more orders are forthcoming. Garment mills are not yet getting clear signals from retailers who obviously have plenty of unsold stock, which is probably of the wrong season garments now, but it is clogging up the pipeline.

Cash is not flowing back down to the garment mills, creating a bit of concern for them. So, like any business in a cash squeeze, they jump onto a government contract which is available, and make face masks which will hopefully produce quick returns, although with the amount of production now directed towards this single item, it would not surprise to see the world awash with them in the near future.

The spinner, topmaker, carboniser doesn't have the ability to make these medical items, and no government health department has yet mandated woollen face masks, although we keep hoping.

So, this early stage sector of the pipeline is getting exceedingly edgy, and some delays and market claims are emerging. This puts pressure on the exporter base in Australia, and translates through to spluttering, finicky demand in the auction room - thankfully there are no such bans on alcohol and tobacco here in Oz.

While the Chinese government has not been seen to be handing out new uniform orders to any large degree at this point, the extended five day break from May 1 will, they hope, kick start the retail economy.

Normally a single day off, boosted to a four day break last year - now becomes a five day holiday so that all those who have been working from home, stuck in a small office can get out and shop.

Gift vouchers are being handed out at shopping centres (after you have had your temperature taken) to entice people to spend. Hopefully, the wheels will begin to turn a little faster again after Star Wars Day.

- Bruce McLeish is Elders northern wool manager.

PREVIOUS SALES: 'Wool market lost in noise of lesser types'.

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