THE Australian wool market was stronger over the course of the week, even though the EMI actually fell by three cents according to AWEX reports.
The key medium to broad Merino sector rose, as did the carding wools indicating underlying strength in a market where buyers are still being offered a plethora of lower spec wools.
Again the danger of simply reporting or reading of the market in broad terms like the EMI basket figure is highlighted.
Whilst it is a useful indicator most of the time, for spinning, weaving or knitting companies overseas who are buying a specific type of wool it can be misleading.
For example a typical European spinner who is using the traditional 20.5-micron wooltop with minimum length of 70mm and maximum CVH of 45 per cent would have seen the price of their wooltop rise by 10 to 15 cents this week.
The better styled greasy wools required to make such a product are being keenly sought after, whilst the types used to make a more generic Chinese Type 55A are more readily available so rising less.
The falling European currency is also having an affect on the textile industry in Europe at present, with the single currency having lost around 4pc in value against the US dollar this month.
As Europe’s Central Bank makes plans to print more money in the form of economic stimulus or charge their banks to hold money within the system, the Fed Reserve in America is all but certain to raise interest rates next month.
This has the obvious effect of decreasing the strength of the Euro against the US dollar, so making imported products, like wool, more expensive.
However on the flipside, exports from Europe to USD denominated markets are more profitable, so in time the benefits will accrue.
The Australian dollar has been a strong performer in the past week and stubbornly remained above the 0.7200 level despite some dramatic falls on commodity markets and a bit of a kerfuffle in the Middle East that would normally be enough to send funds scurrying for ‘safe haven’ areas such as US dollars.
Consequently the wool market is getting slowly and steadily dearer in USD terms, which is a positive building block for the future.
A steadily rising market is exactly what the Chinese processing mills thrive on, as it means that they stock they purchase can be on-sold at profitable levels.
This is helping to keep wool flowing through the pipeline and there is little if any stock building up in the system.
The week ahead promises more volatility as several Central Bank Committees meet and data releases are evaluated, and despite recent comments by the RBA Governor Glenn Stevens that markets should “chill out” over Christmas and see how the economy is in the New Year which makes good sense.
However given the number of analysts making their daily bread from reporting and analysing every piece of data around the globe it is unlikely that we will see a smooth situation in the global currency trading rooms.
Notwithstanding the sideshow of currency volatility, and practically every other major commodity facing headwinds, the underlying wool market fundamentals remain sound.
Unlike cotton and synthetics, wool production remains under pressure and the trend towards lamb meat production in Australia is continuing to maintain this scenario.
Superfine Wool: With little time remaining in order to ship greasy wool to overseas destinations, process it and manufacture the resultant garments before the required wholesaler’s deadlines, buyers will maintain their current activity. A large jump in prices seems unlikely at this stage, but neither does a fall in price.
Medium Merino: The outlook remains favourable with forward prices again being bid above current spot prices through until March 2016. Supply concerns are driving the exporters or processors to lock in quantities, and there is no doubt that the Australian wool production numbers will be lower year-on-year. While this is not certain to lift prices, it could add fuel to the fire when the market does rally.
Crossbred Wool: At this time of year supply of these particular wools is beginning to increase, and demand from processors is yet to become apparent. Other markets around the world are seeing a similar situation with the New Zealand market easing this week and the appetite for South American wools above 28 micron declining.
