Wool market makes positive gains | Elders

Wool market makes positive gains

Sheepmeat
The wool market closed 9c higher on the back of slightly better demand from Chinese processors.

The wool market closed 9c higher on the back of slightly better demand from Chinese processors.

Aa

The wool market closed 9c higher on the back of slightly better demand from Chinese processors.

Aa

REOPENING seems to be the catch-cry of the moment, and so the wool market followed suit with a positive outing last week which saw prices finally rise again after seemingly being on the slide for a long time.

In fact, it was way back on April 8 since we last saw a positive weekly close to the market.

Similar to the small increase of 14c back in April, the market managed to close 9c higher last week on the back of slightly better demand from Chinese processors. In both US dollar terms and Euro, the increase was of similar magnitude and in neither currency did the increase run to double figures.

AWEX's Northern Market Indicator closed up 16c on1230c. The 17 micron indicator closed on 1683c, 18 micron 1517c, 19 micron 1391c, 20 micron 1332c, and 21 micron 1305c.

There had been a smattering of business which was enough to awaken the buying fraternity and create a better tone in the room.

Filling a container with wool of a suitable, consistent quality still proved to be a challenge for many with a huge price disparity evident between those types that met the specification, and those that were outside the range, particularly on the yield front.

Nevertheless, there was a more optimistic buzz around the trade for a while as real orders flowed into the market, rather than buyers just scrounging for value or employing defensive buying tactics as has been the case for the previous month.

Exporters and traders are searching the emails and even checking that the fax machine is plugged in, for follow up business however there doesn't seem to be much happening in the short term.

With an even smaller selection scheduled to go under the hammer this week of only 21,000 bales there may be just enough in the tin to keep it moving sideways but nobody is predicting a jump in prices in the short term.

The world is being bombarded with economic data at present as some countries emerge from lockdowns, and others still struggle to contain the virus. Data released from China on Friday highlights how slow the recovery process could be. With the Chinese economy ahead of everyone else on the curve a glimpse into the future - with a few annotations - is possible.

China's industrial economy bounced back strongly in April after the first quarterly contraction in history according to a South China Morning Post report published online. Whilst retail and investment remain weak across the board, monthly data was improved from March.

Weaker demand from abroad is affecting China's efforts to get the economy back to full speed according to the analysts at SCMP.

The wool industry has seen a similar effect a full month earlier where the market looked set to surge ahead on the reopening of China, only to falter and stumble as Chinese export customers went into lockdown in Europe and America.

Retail sales, a gauge of consumer spending in one of the wool industry's key markets fell by 7.5 per cent compared to April 2019, but was much improved from the 16 per cent fall seen in March. Analysts had predicted a 6pc drop, so the figure was slightly below forecast, but does point to a recovery nonetheless.

Obviously with a lot of things making up the retail basket and woollen clothing tending to a discretionary purchase rather than a necessity we are not out of the woods just yet. But, fast forward a couple of months, and the rest of the world will be where China is on the recovery curve, hopefully.

By Mid-July European and American consumers should be spending again and the mood should be looking up. Those involved in the long production cycle for apparel are now slowly poking their heads above the parapet and asking for samples.

This will bring cheer to many in the industry as a sign of re-awakening demand, and provide a glimmer of hope that the back half of the season can be salvaged.

Wool is still ultimately a seasonal product with the majority of products being sold in the autumn/winter period. - Bruce McLeish, Elders

As has been mentioned many times, wool is still ultimately a seasonal product with the majority of products being sold in the autumn/winter period, which sees garments on the shelf in September for the northern hemisphere.

The train wreck of damage from the Covid-19 outbreak will be long and most expectations or hopes of a 'V' shaped recovery are now off the table. Governments around the globe are asking their respective Reserve Bankers how much more they can give in the way of interest rate relief as a means of further stimulus.

Almost in every place the answer is "nothing left to give" as interest rates are practically zero everywhere. Stimulus is therefore left in the hands of government to dish out and then manage the ensuing budget deficits, no matter how unpalatable that may be for those with impending elections.

Most governments have pulled the trigger early, and hard on the easy stimulus and done everything short of providing 'helicopter money'. In order to get the very cautious consumers spending again, so that business can rebound and rebuild some form of this may actually still be necessary.

Whilst President Trump is said to be considering a further stimulus bill, the wool market is eagerly awaiting the expected recovery stimulus measures following the annual National People's Congress in China which starts on May 22nd. A large volume of uniform orders may just be enough to bridge the gap on the demand side until further improvement in the covid-19 recovery is made around the world.

With such a small volume of wool currently available, the demand does not have to make a huge improvement to turn things around as we saw with just a few orders having been sold.

There are already people starting to speculate on a wool price recovery, simply based on the historically low prices rather than genuine industry knowledge. But add this speculative buying power to some real demand for next season's samples and new uniform orders, and next month could be a whole new ball game.

- Bruce McLeish is Elders northern wool manager.

PREVIOUS SALES: 'Quality wool shortage adds to COVID-19 woes'.

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