THE Australian wool market enters the traditional three week recess not having quite finished the realignment process it began in earnest a month ago.
Since getting overheated in May the market has been looking to try and normalise and take some of the pressure off. This process has been made more difficult with low supply in general and a very low offering of quality Merino wool about.
The currency markets have also clouded the picture somewhat, beneficial in the case of Australian wool growers with a weaker Australian dollar, but problematic in the case of Chinese importers with a weaker Chinese yuan. At the end of the selling week AWEX’s eastern market indicator had closed down A13c to be on 1981c.
AWEX’s northern market indicator closed down 13c on 2013c. The 17 micron indicator was on 2793c, 18 micron 2435c, 19 micron 2282c, 20 micron 2242c, 21 micron 2224c, 22 micron 2199c, 28 micron 924c, and 30 micron 683c.
Good quality superfine Merino wools gained in value as did their broader medium counterparts – a trend which is likely to continue in coming months as buyers seek out the better style wools to fulfil strict client demands. Similarly, knitwear types and carding prices are strong for the better styles, but much weaker when specifications are not up to scratch. Crossbred wools are struggling to keep up any momentum, but again the traditionally prepared clips held up better.
Although nearly all of the AWEX micron price guides showed a negative movement for the week there is again a very large disparity building between the good quality lots and the poorer style, faulty wools. The discounts being applied in the market for typical drought affected wools containing high VM, high mid breaks, and low strength can easily add up to 100c/kg at present. These are not arbitrary discounts created by wool buyers, but definitive costs based on what a spinner will pay for the wool top that has the correct specifications or not.
Although nearly all of the AWEX micron price guides showed a negative movement for the week there is again a very large disparity building between the good quality lots and the poorer style, faulty wools.
- Bruce McLeish, Elders
Add in another variable such as poor classing or breeding that gives rise to dark and medullated fibres and the number quickly rises to 200c/kg. The current price levels for the merino fibre are fantastic by any measure, and most people in the trade agree that this new world order can be sustained in the long term. But the high-quality garments being produced rightly leave little room to manoeuvre from a quality perspective, hence the discounts being applied for fault.
Already there is some angst being created by blending other origin wools with Australian Merino to try and meet the price of previously sold orders. In some cases, this can work, in others not. For many ‘new’ garments and products being worn next-to-skin a raw material input that has a high CVD simply destroys the integrity of the Merino fibre and threatens the sustainability of the premium position that Merino has now reached. So, while the current price and status gains of Merino are to be applauded, the industry does need to pay attention to quality in order to retain this increase and move further.
In Europe holidays are fast approaching but the season has wound up with a very successful Idea Biella fabric exhibition held in Milan this week. All of the important fabric manufacturers from across Europe attended the three day event to showcase their new creations for the autumn/winter 2019-20 season. Visitor numbers were again up on last year and despite the much higher price levels being discussed there was a degree of optimism about the future. Not everyone is able to pass on the increased cost in full, but with a collaborative approach and marketing campaigns to further illustrate the ethical, sustainable nature of merino most are confident that they can continue to develop new customers.
Someone obviously left the gate open and President Trump wandered onto the world stage this week to create a bit of havoc with his unusual brand of politics and diplomacy. Far from being the usual statesman-like visit to allies around the world as his predecessors, some who were labelled quite boring, Mr Trump has been able to ruffle quite a few feathers across Europe with the Brits and Mr Putin still on the agenda. Whether his idea of shaking up the status quo of NATO, Brussels and the Euro region in general is a good thing or not remains to be seen.
In China, it seems they do not quite comprehend the tactic of ‘doubling down’, and the ever-increasing list of tariffs being applied by the US. This is of particular concern for the wool industry given the increased importance of the Chinese market for Australian wool. For more than a decade China has been the destination for 75-80 per cent of Australia’s wool, but increasingly the Chinese consumer is the buyer of the final garment – at current prices.
With unfavourable currency movements as a by-product of the trade skirmish requiring more capital to finance the wool trade and enough uncertainty about tariffs around the world to make exporters very nervous Chinese mills are struggling to keep product moving as smoothly as it was. Add in the very strict application of environmental controls that has seen as much as 30pc of the wool scouring industry shut down, leading to massive delays in processing, and it is no wonder many Chinese processors are keen to sit back and reflect on the future now that the recess has arrived.
There is still a fair degree of indecision about which products, or groups of products will be in most demand in the coming season so until there is more clarity Chinese mills will be happy to remain safely on the sidelines. This will see a continuation of the current easing when we recommence sales in mid-August until later in the spring when prices will stabilise and again start to rise, unless something changes in the meantime.