Australian wool market surges 95c | Elders

Australian wool market surges 95c

Livestock
The Australian wool market continues to surge back towards recovery, gaining 95c.

The Australian wool market continues to surge back towards recovery, gaining 95c.

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The Australian wool market continues to surge back towards recovery, gaining 95c.

Aa

THE Australian wool market continues to surge back towards recovery from the COVID-19 induced hit, with AWEX's Eastern Market Indicator gaining 95c to close on 1117c.

Notching up a 95c rise in a week again surprised basically everyone as the small flurry of orders from Chinese processors coupled with such a small supply created more than a bit of panic in the auction rooms.

Everyone is aware of the wool market's renowned volatility and expecting an up-and-down ride in October as usual. However, thankfully most of the movement is still being energised by the recovery.

Wool prices arguably went far too low back in July/August and the market as a whole is still pushing back towards a reasonable level.

Having such a small supply base at present, particularly for merino wool, makes even a small positive step turn into a large jump upwards.

Apart from those who sold at the low point, almost everyone is glad to see prices getting back to a more sustainable basis.

AWEX's Northern Market Indicator closed up 108c on 1184c. The 17 micron indicator closed on 1777c, 18 micron 1543c, 19 micron 1309c, 20 micron 1177c, 21 micron 1140c, and 28 micron 520c.

The market is still $4 down on the same point last year, but looking a lot healthier than it was two months ago.

From a technical point of view the market has now recovered 50 per cent of its losses at the superfine end, and 25pc for the medium merino segment.

Typically, when a market recovers from the low point it achieves a 50pc recovery, then take a breather before deciding if it can go higher.

The trade had been expecting a pause last week, or perhaps next week, but the momentum looks like continuing for at least another week at this stage.

As Michael Avery from Southern Aurora Markets pointed out the wool market has moved by more than 30c in a day, on 40pc of the auction days so far, this selling season.

That does make the premium required for a minimum price hedge seem fairly insignificant, especially given the external macro-economic and political dysfunction around the globe at present.

Of course, for a smooth upward trajectory to continue all the industry requires is a steady pattern of increasing demand.

At the moment demand seems to be concentrated in only two major sources, sweaters and uniforms, both from China.

With colder than usual weather forecast to move across China this winter people are being encouraged to cover up and enterprising retailers will no doubt be promoting the virus busting abilities of natural fibres.

The sweater market in China, particularly those light weight garments which do not need to be removed every time one walks from outside to inside, appear to be 'on trend' in China this season.

Cashmere, although also much cheaper than last year is still priced well above the reach of many consumers, so a blend with superfine Merino wool makes the garment affordable to a wider selection of people, and arguably makes it better by adding longer, stronger fibres.

The bulk of Australia's superfine Merino, regardless of specification appears destined for this market at present.

Although 17 micron prices are now only a mere $2 below the same point last year, they are still well below other noble fibres such as cashmere, the sourcing of which is troublesome to say the least this season.

The pandemic obviously closed borders and disrupted visits by traders, and the economic downturn has seen governments in both Mongolia and Iran, two major producers of cashmere, disrupt the flow of cashmere by trying to support local farmers.

Tariffs and export bans, as well as floor prices have all been used to try and maintain farmer's income with varying degrees of success.

The Australian wool industry has seen first-hand how disruptive these sorts of mechanisms can ultimately become.

The other major source of demand at present is the Chinese uniform industry.

The other major source of demand at present is the Chinese uniform industry. - Bruce McLeish Elders

While nothing out of the ordinary has been reported in terms of volume of orders, or timing, some of the trade have apparently been holding back on purchases of greasy wool, just trying to eke out a few more cents to make a profit in what is typically a low margin, high volume business for manufacturers.

Ultimately the time has come for some of the major orders to begin to be filled such as the Chinese Army, which is obviously a large number.

The manufacturers have had to step on a large amount of greasy wool quickly, thus creating a lot more activity in a low supply auction market in Australia.

Perhaps the sweater market in China has another month or so to run as the retail season swings into gear and sales opportunities such as 'singles day' and the like provide a boost in one of the world's few covid free consumer environments.

The uniform orders will continue to roll though although there are no signs of government intentions to boost purchasing numbers above normal either.

Other sources of demand are desperately anticipated.

There are some glimmers of hope that Indian processors are reopening and needing to purchase raw material.

European processors are obviously battling a second wave of COVID at present, and many are running on short time, or with government mandated reduced workforces to assist with COVID management plans.

So, for the processors of the world, finding a market for their goods at present outside of the Chinese domestic scene is a difficult situation.

Yarn and fabric production should be gearing up to full speed at this time of year, but the uncertainty being transmitted back along the pipeline from very nervous retailers is causing many to stop and look.

This makes the top makers and carbonisers and scourers more than a little nervous, yet the greasy wool market, at this stage shows no sign of slowing.

Which one is the first to blink will be interesting. If the flow of wool to market remains controlled and steady, and there is no external shock from overseas governments we could just hold on long enough to maintain the trend.

Conversely if the Chinese industry has enough wool, Trump upsets the applecart, and Bojo upsets the EU all bets are off, and those who hedged their next clip will be grinning.

- Bruce McLeish is Elders state wool manager - Queensland.

PREVIOUS SALES: 'Australian wool market slips back'.

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