Wool market eases but still 20 years strong

As AWEX pointed out in their weekly report the EMI has fallen by 4 per cent in the past three weeks, which is not a huge move compared to many other commodities and most of the Merino categories still sit well over the 95th percentile of prices for the past 20 years.

At the end of the week the EMI had fallen by 27c to 1751c, US13c and Euro9c. Superfine types continued to lead the way, not surprising given their lofty prices of late and the looming closure of their particular season.

Medium Merino types were less affected but still closed 20 to 40c lower, although as everyone involved in the weekly activity of wool buying pointed out the better tested wools were virtually unchanged in price.

Crossbred wools succumbed to the overall trend and eased by 10c, as did the carding sector.

AWEX’s northern market indicator closed down 43c on 1826c. The 17 micron indicator closed on 2746c, 18 micron 2328c, 19 micron 2027, 20 micron 1912c, 21 micron 1854c, 22 micron 1823c, 28 micron 804c, and 30 micron 571c.

With a relatively low pass-in rate this week of 9pc, next week’s offering reduced to just under 40,000 bales and only one further sale before the Easter recess topmakers in China are suddenly looking a bit more closely at their stocks of greasy wool.

Adding to the supply constraint is the absence of a sale in South Africa next week. It is still too early in the year to find supplies from the various northern hemisphere producers and so combing mills who will be operating 24/7 for the next few months are anxious not to run out of fodder for their machines.

Already on Thursday last week we saw a better tone emerge in the auction room as orders built up enough to get exporter’s appetites a little keener. Most traders in China expect that this should continue for a while now that the market has been ‘slapped down’ from the exuberance of February.

In Europe and other second stage markets around the globe activity is still ongoing although against an increasing backdrop of price resistance. Spinners and knitters are operating full steam to create the products that have already been ordered for the 2018-19 autumn/winter season. Not all have yet finished procuring their raw materials, and there are some contentious price discussion happening in some areas.

Others are nervously watching the vessel schedules as the global shipping companies appear to be reducing capacity in order to increase margins, which is resulting in much longer transit times. In many instances the truck is waiting at the dock when the ship arrives to dispatch wooltops to a hungry spinning mill.

Other processors have been watching the falling market of recent weeks and waiting to see how much cheaper prices will become before committing to their last minute purchases. There are now two different price levels being quoted for tops or yarn. With the spot market price for near term delivery obviously coming from stock already in the pipeline at higher levels than for more distant shipment where the greasy wool can still be purchased. No buyer likes to pay a higher price than what he can see for future deliveries, so to an extent it remains a battle of the wills, or a tug of war between the ‘haves’, and the ‘have nots’.

While the wool market has been sorting itself out over the past three weeks, the world economic picture has been rolling along quite smoothly. The US economy continues to strengthen and ‘jobs growth’ is producing some outstanding numbers. Europe, courtesy of the German manufacturing engine is moving slowly towards a less stimulus driven future and Asia is cranking up again after the lunar holidays.

Of course there are always a few speed humps to make the journey interesting, but they seem to be mostly political in nature at present although some have the potential to become major economic factors. The meeting of the minds between Kim Jong Un and President Trump will no doubt be a chat worth overhearing if is does indeed go ahead. But the Trump tariff issue presents a far more destabilising factor with potential retaliatory action by both China and the EU having the potential to make trade and global commerce a bit messy. Even if it just results in delays with clearance of goods as Customs officials spend more time going through documentation it will be enough to make life difficult for importers who are working on a just in time schedule.

Superfine: Attention will soon focus on the new season, with a lot of discussion about seasonal conditions and how they will affect the quality of the new clip.

Medium Merino: The futures market is flat with prices simply declining in line with interest and storage charges over time, but still more than a dollar higher than 2017.

Crossbreds: All looking okay in the short term to hold current levels.

- Bruce McLeish is Elders’ northern zone wool manager.