Wool market turns ugly on currency

It was not the sole factor, but accounted for nearly 2 per cent of the 6pc slide in wool prices.

AWEX's Northern Indicator closed down 55c on 991c. The 17 micron indicator closed on 1445c, 18 micron 1239c, 19 micron 1076c, 20 micron 1025c, 21 micron 1016c, and 28 micron 465c.

A lack of orders in the current COVID malaise is creating a fairly despondent outlook across the trade.

It can be rectified, but the middle of August is, and always has been, the lull between the processing seasons.

In a normal season, mills would be producing stock, sending out samples for the next season's collections and taking a punt on what orders may be forthcoming.

In the current environment retailers are unlikely to answer the phone to talk about next season at this stage and there is certainly no rush of last-minute orders as we have seen a couple of times in the last few years.

In short, the retail fraternity are totally focussed on getting consumers online, or in store over the coming weeks, selling some product and surviving.

After which, they will turn their attention to next year, but they definitely don't want to discuss the autumn/winter range for 2021-22 just yet.

There are a few positive signs emerging in the greasy wool market amongst the doom and gloom at present.

Reasonable price premiums for superfine and ultrafine types are beginning to emerge, and the appetite for the better superfine Merino wools appears to be growing.

No doubt the challenging growing season of 2019-20 has contributed to a broader micron overall and lower tensile strength with higher mid-breaks brought about by the break in the season.

Lower wool prices are still better than another year of drought - at least for those who have seen the drought break.

While difficult conditions persist across the globe, some of the more forward-thinking operators are starting to ramp up their activity in a measured way.

The European mills have a much longer history and due to geographical constraints need to plan a bit further out.

In some cases, their window of opportunity to purchase raw material is also more restricted as well, so the past couple of weeks has seen an increase in activity by some of these buying houses.

Conversely, mills in China are a bit more reticent to poke their heads above the parapet at the moment.

During the massive and rapid evolution of the wool textile industry in China over the past 25 years it has been relatively plain sailing.

Both by design and good fortune Chinese mills have had a fairly smooth ride, with government support, labour cost advantages and a growing domestic market all contributing to their development and growth.

The current pandemic induced crash has stifled opportunities, clogged the supply chain and decimated their cash flow.

Very few early stage processors are currently running at more than 50pc capacity, with some of the smaller operations forced to close their doors, at least temporarily.

Given that the number of carding and combing machines around the world, but predominantly in China, is still similar to 1990 when the Australian sheep flock was 186 million and retail activity certainly a lot better, it is not surprising that some are feeling the pain.

Some rationalisation is no doubt going to occur, particularly as banks and local governments withdraw their support.

However, a the end of the day the problem is not the number of machines, it is the lack of demand coming back down the pipeline.

COVID-19 is forcing change upon many industries, and different methodologies and business practices will evolve.

Those companies with a mostly, or solely online selling focus are doing much better than the bricks and mortar operations.

Some online operators are even reporting an increase in activity compared to last year.

New virtual fitting rooms might seem a little far-fetched, but companies like Gucci are developing this technology for a new range of sneakers.

There is no doubt some things will remain different in the post-COVID world, but for the bulk of sales, production and processing we are looking for a return to near-normal as soon as possible.

With governments across the globe tending to manage outbreaks with contact tracing and limited isolation practices rather than wholescale shutdowns the economic recovery may be able to be sustained.

For nearly every gloomy statistic, there is a corresponding upbeat set of data showing that pent up demand is there, and once released does actually lead to a recovery in consumer activity.

The fact is that the daytime temperatures are currently hovering around the mid-30Cs in most of China, which is not actually conducive to selling winter garments.

Europe has also been going through a fairly hot spell, and the West Coast of the US is battling bushfires.

So, retailers are not rushing to fill the shelves just yet with winter clothing.

Until they do, and sell a bit, they will not be talking about new orders for next season, which is where we are at from a greasy wool selling perspective.

The next six weeks will obviously be a challenge, but with only 22,000 bales on offer this week, we should get a fairly good gauge about whether this price level can be sustained through until October, when hopefully orders begin to flow again.

Even with a lot of machines running at only around 50pc of capacity the mills do need a bit of wool shipped, so there may have been just enough sold to keep things relatively stable in the coming week.

When the market will turn upwards again is the million-dollar question. Auction week 13 (Late September) is often a trigger point as can be the Chinese National holidays during the first week of October when new government stimulus can be forthcoming, as well as an uptick in retail activity.

Hopefully we don't have to wait until after the US election as that result is far from clear cut at this stage.

Somewhere in the next four to six weeks will see the wool market pick itself up off the floor, shake off the dust and move off into the new greener pasture.

- Bruce McLeish is Elders state wool manager - Queensland.

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