ALTHOUGH wool auctions in Australia continue to work through the annual winter recess there is still plenty of activity around the world and the resumption of sales cannot come soon enough for some.
Many Europeans are already on the beach, or heading there on August 1 as will be the case for the Italian fraternity. Summer holiday shutdowns have nearly run their course for the German, Russian and Scandinavian processors, most of who return to their factories next week. For many of these businesses warehouses are quite empty and they will be contacting suppliers to see what can be delivered in quick time. Others will be assessing the orders placed, or indications given during the recent fashion fairs, as this will determine the production program for the next six months.
Asian mills have kept operating the whole time, even through the recent heatwave in China where Shanghai recorded a record 41 deg C day with plenty of humidity. Some of the production has been geared towards the uniform business, or the ongoing fake-fur product that is destined to be China’s fashion item this year. Other early stage processors have been producing against forward sold positions from the few spinners who have locked in requirements for the third and fourth quarters rather than waiting for the usual August price dip.
Not all manufacturers have a clear strategy in place yet, but anecdotal reports indicate that the outlook is comfortable compared to previous seasons. The price of wool remains on the high side comparatively, but more importantly the sense of optimism in the demand leg is much better and nearly everywhere you look there seems to be a good news story about the use of wool. The harvesting of Northern Hemisphere clips is nearly complete and this wool is progressing toward the scouring and processing mills of the world.
Some will be used at the better end of the apparel chain, while the majority will fill the void created by the high priced Australian, South African and Argentinian product. Provided a degree of truthful labelling is maintained there is a positive outcome in having these lesser quality wools being directed into areas that have been priced out of the Australian market. It will help to maintain the elite fibre status of Australian merino fibre, and build on the aspirational concept.
There is no reason to think that prices will not increase again when the seasonal demand resumes.
- Bruce McLeish
Marketing a fibre that only the ‘well off’ can afford to purchase may seem harsh at first, but in reality Merino constitutes only around 1.3 per cent of the worlds apparel garments so it can certainly be marketed as elite. Only in this luxurious segment of the market will prices for greasy wool be achieved that make it profitable to grow, as well as provide a margin to continue R&D, marketing and sustainability programs. In simple terms if the industry were striving to produce affordable socks and jumpers for everyone, we would be looking at something like $5/kg for Australian wool.
At the close of auctions in Australia the wool market was certainly in a good position to maintain this elite fibre status. On nearly every measure the market had increased by 15-20pc year-on-year, and all of the Merino fleece categories are hovering in the 95th or better percentile for the past five years, meaning that prices have only been higher than current levels for 5pc or less of the time over the past five years. Returns for superfine Merino eased slightly over the past couple of months. However, there is no reason to think that prices will not increase again when the seasonal demand resumes.
Medium Merino prices continue to shine, and as the processors switched their focus to these medium types to cover the off-season, 22 and 23-micron types were the star performers. The big question for everyone will be what happens when sales resume in the second week of August. There are people right along the processing pipeline, not just growers in Australia asking the question and trying to work out their buying and selling strategies.
Topmakers, principally in China, but also a few scattered around the world are still beating each other up trying to get business, so margins for them have been tough. If they get the trend wrong, or buy too early or late, their already skinny margin can go horribly wrong. So this group, where overcapacity is still a problem, are the ones most concerned about just how many bales will be offered, what the VM content will be, and of course what the currency is doing.
The US dollar has continued to soften, pushing up the value of the Aussie, since the auction recess commenced. Although most experts predict the USD/AUD to be somewhere around US5c to US70c by mid 2018 we are currently hovering close to US80c, which makes wool around US50c/kg higher than the last auction price. Alternatively the Australian market needs to ease by around 50c to maintain the same US dollar price.
The result on the first auction day will no doubt be a mixture of ups and downs for the different categories depending on orders placed and how much volume of specific types are available, but in general the trend will be stronger. There have been enough enquiries from those mills still operating to keep product moving along the pipeline that we have not as yet created a bottleneck of stock. The only uncertainty is how much wool will be offered during the spring flush period of September and October. A couple of sales rosters above 55,000 bales will encourage buyers to sit back. On the other hand, if growers spread the offering over the next six months prices should continue to rise steadily.
- Bruce McLeish is Elders northern wool manager.
