Quality wool shortage adds to COVID-19 woes

Some buyers were herd to lament returning with half-finished orders simply because there was not enough wool of suitable quality to buy.

Market indicators published by AWEX continue to reflect the downward movement of the lower quality wools, and the sheer weight of numbers skew these indicators far into the red.

AWEX's Northern Market Indicator closed down 45c on 1214c. The 17 micron indicator closed on 1657c, 18 micron 1488c, 19 micron 1353c, 20 micron 1303c, 21 micron 1278c, and 28 micron 611c.

Buyers overseas are becoming increasingly frustrated at the pervasive negativity and are searching for a way to report the market with less emphasis on the poor end of the current offering.

Trying to have a reasonable conversation with customers about buying woollen products at present is difficult enough with these sorts of numbers floating about in the background.

While Australia itself is in a very good place in the whole COVID-19 saga, the wool pipeline is becoming somewhat congested.

Contrary to the simplistic view of some, the Australian wool industry will not survive if it does not pay attention to, and work with, other parts of this global supply chain.

To declare that adverse conditions have been overcome and industry stakeholders have worked together to sell over $250 million worth of wool in this difficult time waves a red flag or worse in the face of customers or colleagues further along the pipeline.

Nary a single garment has been sold over the past two months with the world in lockdown. This $250m has simply been passed along the chain as inventory, with a market falling like a stone. It has put immense pressure on the financial resources of exporters and early stage processors - hardly an achievement to be proud of.

The bubble covering Australia and perhaps New Zealand as well may make for good headlines locally, but the wool industry is not going to last very long without its global partners.

Growers have done an excellent job recently to stem the flow of wool going into the pipeline to match demand in terms of volume if not necessarily quality, but others are clearly still wearing blinkers when it comes to thinking about the broader wool industry.

Some important processing and retail markets for the industry are reopening after the best part of two months being locked down, but this has yet to lead to a recovery in demand for greasy wool, let along top, yarn or fabric.

There are plenty of US companies heading for the safety of the try line and Chapter-11 bankruptcy protection leaving their suppliers high and dry. The long payment terms granted further along the pipeline mean that many meters of fabric have been delivered, but payment for this is now very much less than certain.

Many companies are facing financial difficulties as not very many had the cash resources set aside to weather a storm such as this. Some are choosing to use it as an excuse to renegotiate expensive contracts, or cancel them altogether.

Even a well-known powerful vertical company in India with dozens of retail outlets has been rumoured to be cancelling hundreds of tonnes of greasy wool contracts.

Of course, many of the final goods which have delivered to retailers is now the 'old season gear', and no longer wanted with shops now stocking spring/summer collections and hoping that the customers will come.

A big shopping festival during the Chinese National holidays last week called Double Five, as the May holiday had been extended to five days this year, saw retailers offering every incentive they could dream up to get consumers through the doors. While the total volume of transactions was suitably impressive, nobody is under any illusion that we are back to normal.

Italians have been allowed to return to the office or factories and while there will be a lot of hand waving and excited conversations going on about how the government and others handled or mishandled the situation, soon the discussions will turn to getting the mills moving again.

Getting the retailers to focus on autumn/winter collections to start using the yarn and fabric already in production will be a challenge, and a lot will depend on how successful the reopening of society in Europe is.

Recent Chinese data releases showed a 3.5 per cent rise in exports for the month of April, confounding an expected 15pc fall, and outweighing a 14pc drop in imports. To some, the strong showing boosted speculation China could recover from its coronavirus lockdown more quickly than expected and support global growth in the process.

The upcoming Chinese congress beginning on May 22 will see about 3000 delegates gather physically or virtually in Beijing and is expected to finalise much important government policy.

Following this event, we may have a much clearer picture of not only Chinese uniform orders, but wider stimulus packages in general to assist the Chinese/global recovery, and no doubt ratchet up the importance of China on the world stage.

The upcoming US presidential elections will obviously encourage certain politicians to make outlandish claims about the source of COVID-19 and other nasties, which will not endear them to other members of the global community.

However, most people can clearly see the underlying rationale, or lack thereof and it is just the 'media' who seem to report these comments as gospel with little or no source validation. In defence of these purveyors of information, it is probably the scant attention span of so many readers that make explanation and analysis futile.

At the same time as the US election campaign ramps up we can also expect to see some posturing from the Russian leadership team, as a pseudo election campaign is undertaken to make changes to the constitution and restore public confidence.

Meanwhile, we hope to see the wool market splutter back to life this week and at least find a temporary base while the reopening of society and supply chains continue.

- Bruce McLeish is Elders northern wool manager.

PREVIOUS SALES: 'COVID-19 continues to bite into wool market'.