Gyrations impact on the Australian wool market | Elders

Gyrations impact on the Australian wool market

Sheep
Gyrations are impacting on the Australian wool market

Gyrations are impacting on the Australian wool market

Aa

Gyrations are impacting on the Australian wool market.

Aa

THE Australian wool market continued its gyrations either side last week, with a fall, as expected on the first day, followed by somewhat of a recovery in price on the second day.

This culminated with an overall movement of 9c down in local currency terms.

European buyers saw a negative adjustment of Euro10c, although for the type of wool which most of them are chasing, quotes were probably higher across the week.

Buyers in the Chinese currency saw a similar decline, and US dollar prices slipped by 15c or 1.5 per cent as well.

As has been the case for the past few months, the better style Merino fleece was well supported, the poorer styles attracting the usual discounts commensurate with the degree of difficulty in processing, and skirtings and cardings following a similar path depending on processing capability.

Crossbred wools continue to meander along, just keeping their heads above water, in terms of profitability, but still desperately searching for that elusive new demand driver.

AWEX's Northern Market Indicator closed down 2c on 1441c. The 17 micron micron indicator closed on 2403c, 18 micron 2022c, 19 micron 1664c, 20 micron 1347c, 21 micron 1269c, and 28 micron 448c.

As expected the 21 MPG in Melbourne came back into line, after being pushed up too high the previous week, by a disproportionate volume of RWS accredited wool selling in Melbourne.

The industry will no doubt be discussing how to handle the reporting and quoting of these wools, which are achieving a consistent premium of 10pc or more above the traditionally prepared and grown clips.

While there are several accreditation schemes currently being promoted and used across the globe, RWS and GOTS are the two schemes which have managed to gain the street-appeal with retailers to date, and are therefore generating the premium in auction - due to scarcity of supply.

Having a lump of these wools in the indicator - or not - does have flow on effects to other parts of the industry, and is something which needs to be managed.

Many traders went to great lengths to explain the price movements last week to their clients in China about the market in South Africa.

The overall market there increased on Day 1, with a lot of sustainable wools in the catalogue.

On the second day, most traditional wools were still dearer, but the headline market numbers fell due to a lesser volume of sustainable wools on offer.

In Australia, with a larger catalogue, and a lower percentage - at this stage - of sustainable certified wools the effect is usually less noticeable.

Unless you happen to be settling a futures contract against the 21-micron indicator when it spikes as it did a week ago.

Small issues, caused by a small industry no doubt. If it were possible to increase the size of the wool industry maybe some of these finicky things would not be a consideration.

However, that would give us a lot more fibre to find demand for, and present a greater challenge than it currently does.

Many people ask how small can the Merino industry become, before it becomes unsustainable, or inconsequential.

Many people ask how small can the Merino industry become, before it becomes unsustainable, or inconsequential. - Bruce McLeish, Elders

Breeding flock economics aside, as a textile fibre arguably size doesn't matter.

Other noble fibres roll along quite happily with a far smaller production base than Merino.

Current Merino wool (less than 24 micron) production is around 380,000 tonnes clean according to the latest IWTO figures.

By comparison cashmere production is estimated to be 25,000t across the globe.

Breaking it down further to what IWTO call Luxury Animal Fibres, and superfine Merino currently makes up 72pc of the total fibre consumption of 172,000t, with Cashmere a clear number two at 15pc.

Clearly in the case of superfine Merino, we still dominate the class, and given that wool now accounts for less than 1pc of total world apparel usage, it is probably time we ignored the bulk market and focus on where our strengths lie - in the luxury segment.

You don't see the cashmere or silk industry spending their marketing funds in the 'Dollar Discount stores'.

So, finding more immediate demand for the luxury fibre, as well as that elusive new product to stimulate crossbred demand hinges largely on China.

European demand is rollicking along nicely with Italy leading the way, followed by Germany - once they decide who will replace Angela Merkel on Monday, which is a big ask.

China which still consumes more than 50pc of the final product is experiencing a few issues which are giving consumers a reason to pause, and therefore giving retailers a few sleepless nights.

In turn the production pipeline is backing up a little, cashflow concerns are being raised due to the stop-start nature of business flow.

The mid-autumn festival holidays on September 21-22 will give people a rest, and the opportunity to eat a lot of moon cakes, but from a retail point of view the national holidays in the first week of October are normally a much more active period.

Hopefully by then the weather is cooler across China, and this encourages the populace to buy that Merino sweater or new trendy set of thermals they need.

How the Chinese government responds to Evergrande, the large property developer who is barrelling towards bankruptcy will no doubt affect the psyche of many in China.

The sheer scale of the company - around 1.4 million apartments under construction, $300 billion in outstanding liabilities, in a construction industry which accounts for something like 25pc of the country's GDP means it is perhaps too big to fail - but is exactly the types of speculative capitalism that President Xi has been trying to dampen down, or highlight as morally wrong for the modern China.

With upcoming 'elections' in early 2022, Mr Xi will want to keep things on an even keel, and not risk a housing price collapse, but hopefully the solution is found quickly and the retail season for wool is upbeat and positive in this critical market.

Things should be okay for the longer-term plan of rising prices through from October until the New Year, but it would pay to keep an eye on world events, and just-in-case, the futures market.

- Bruce McLeish is Elders state wool manager - Queensland.

MORE READING: 'Woolgrowers enjoy the spoils of skyrocketing ultra and superfine prices'.

MORE READING: 'Lamb, mutton top of the tastes for the US'.

MORE READING: 'EMI lifts but wool market remains volatile'.

Want daily news highlights delivered to your inbox? Sign up to the Queensland Country Life newsletter below.

Aa

From the front page

Sponsored by