THE lower currency failed to hold the wool market up this week with only cardings and crossbreds managing to remain in positive territory.
The lower Australian dollar muted the overall decrease for Australian growers, and although only 38,000 bales were offered and 16 per cent of these were passed-in, lower demand from overseas customers saw the market retreat after valiantly trying to hold its ground early on Wednesday.
All Merino fleece types finished lower with the overall market indicator easing by 10c to 1534c in local currency terms and US19c. A plethora of higher VM, medium Merino fleece and skirtings was simply too much quantity for the trade to digest. Free wools were keenly sought after but after a time, the appetite for higher VM wools was simply filled and the discounts increased.
AWEX’s north market indicator closed down 24c on 1615c. The 17 micron indicator closed on 2354c, 18 micron 2223c, 19 micron 1939c, 20 micron 1630c, 21 micron 1506c, 22 micron 1441c, 28 micron 768c, and 30 micron 588c.
Crossbred wools were finally able to outshine their Merino cousins and remained firm to slightly dearer across the week on the back of favourable currency, and managed to gain between 5c and 10c for the week. The carding sector also performed quite well and finished in positive territory.
At a time when demand overseas is selective and targeted with spinning mills only buying raw material when they have a firm order to produce, and then only ordering the exact quantity required, combing mills are increasingly reluctant to purchase large quantities of mill fodder. They too are becoming more selective in the types purchased in order to keep their options open when it comes time to process this wool.
Rather than purchase a large volume of high VM medium Merino that may only have one possible destination or one customer, they are tending to purchase smaller combing parcels that can be mixed and matched to create different products depending on customer requirements. This is not an unusual phenomena, but would be considered normal for this point in the season, and overall given the stellar performance of the merino market over the last six months, things are still looking pretty good.
One year ago the 21-MPG was pushing up against a ceiling of 1400c. Today it is sitting just above the 1500-cent level and so we have arguably increased the price of a bale of Merino by a healthy 7pc. The challenge is obviously to keep it there and build further, however the building blocks are in place. The rise in US dollar terms is a more significant 13pc, and while there is a bit of chatter about price resistance this sort of increase is not untenable, nor unsustainable.
Stability is the key to cementing this ‘new’ price in place. If the market does find cause to dramatically decrease it will leave some people further up the chain with expensive stock, broken promises and more nervousness about placing new orders. Alternatively if this market is able to gradually drift along, probably slightly lower in line with the normal seasonal pattern, by the time the new season comes around in August customers along the pipeline will have confidence to place orders earlier than what we saw this season. In theory that should facilitate a strong performance in early spring, rather than the stop-start scenario of the last couple of years.
Given the lack of stock throughout the pipeline at present, which will probably still be the case in July/August, spinners and weavers will have a tendency to order early rather than get caught in a fast moving market. Seasonal conditions across Australia look okay at present. However, opening rains have been spasmodic and some areas are starting to lighten off paddocks. With the chance of El Nino reducing, but still around 50pc according to BOM, wool production for 2017-18 may still be slightly higher than this year. But with practically zero grower stocks now available thanks to a sell-off at high prices, the actual amount of wool presented to market next season will be the same or slightly lower than was the case this season.
Being a global market, not just Australia although we continue to supply the bulk of the world’s apparel fibre, economic and political stability and the resultant consumer confidence will play a key part in allowing the above scenario for the wool market to play out.
This week saw the VIX, or fear index as it is commonly known, fall to its lowest level in decades. A win in the French presidential election by ‘the more stable’ candidate, together with the election of a President in Korea who is pushing a more conciliatory approach and dialogue in relations with the North meant that global share traders became decidedly less jumpy. The CBOE Volatility Index (VIX) fell to 9.72, its lowest level since 1993. No doubt next week will herald some new crisis for the media to get excited about, as traders find it difficult to operate in a millpond, but until then we can make plans for stability.
Superfine: With very little supply available, and also demand more or less finished for the season, the superfine segment will drift along until August. The basis may tighten a little from where it has been, but even a contraction of a dollar or so would still see superfine in a good position to start the new season.
Medium Merino: The ceiling in US dollar for 21-micron continues to hold firm, and would be expected that the market will come back below 1500c in Australian dollars before gradually drifting towards the middle of its trading range over the winter.
Crossbreds: More of the same for crossbred wools at present, but as time passes the stock in the pipeline is gradually being consumed, so we are getting closer to a more balanced situation.
