Wool market comes back | Elders

Wool market comes back 48c

VOLATILITY: What the currency market gave to wool growers the previous week was again taken back.

VOLATILITY: What the currency market gave to wool growers the previous week was again taken back.


What the currency market gave to wool growers the previous week was again taken back.


THE almost ‘necessary’ correction to the wool market is actually still yet to fully play out.

This week we saw the currency move against the fortunes of Australian exporters causing a deterioration in prices received with AWEX’s eastern market indicator falling by 48c to 2068c. However, in US dollar terms the market only eased by 18c, thus making sure that the correction for overseas customers was negligible. So, what the currency market gave to growers the previous week was again taken back.

Volatility always seems to accompany the wool market, and already by week’s end the currency trend has reversed again and the Australian dollar is back below US73c suggesting that growers may benefit again next week.

The topsy turvy exchange rates have seen the major indictors such as the 19-micron fleece price guide jump one week by 150c, then dive by 70c, before gaining an implied 30c again by Friday just based on currency movements.

AWEX’s northern market indicator close down 46c on 2117c. The 17 micron indicator closed on 2917c, 18 micron 2617c, 19 micron 2393c, 20 micron 2303c, 21 micron 2280c , 28 micron 930c, and 30 micron 1526c.

The instability in Canberra has certainly not been helping the outlook for the Australian dollar, but hopefully that is now rectified. From a longer viewpoint the trend of the Australian dollar is still expected to be negative against the US dollar. However, with the US Federal Reserve expected to raise rates two more times this year extending the interest rate differential between America and Australia.

Previously the comparatively higher interest rates in Australia were supportive of the Australian dollar, so logic would suggest now that the reverse exists, the Aussie should keep decreasing in value against the US dollar. Logic and the currency market rarely make a good match though, unless hindsight has been applied.

Should this trend continue it may mean that the wool market can continue to ease in US dollar terms, but growers selling in Australia be relatively shielded from the effect. Buyers of Australian Merino, and the small volumes now being offered again in South Africa are struggling to find customers interested in purchasing their offerings at present. Different factors are creating the lack of demand in different geographical locations however, and none of them are long term issues.

Volatility always seems to accompany the wool market. - Bruce McLeish, Elders

Across Europe buyers are either still on holidays or have enough raw material in front of them which means that they are simply not very interested in purchasing new supplies of raw material this week, with the notable exception of the usual high-end Italian buyers who must operate when supply is available.

In China and Asia in general the normal seasonal slowdown is upon us, leading to a decrease in demand. Adding to the reluctance of buyers to place orders is the current price level, and the stubborn reluctance of the market to correct from what everyone agrees was an unnecessary spike two weeks ago.

So, given that normal seasonal patterns prevail, the Chinese/Asian demand should start to increase again by mid-September, and the Nanjing Wool Market Conference is often a precursor to this event. Tight supplies will keep buyers nervous, but most concur at this stage that the correction has another couple of weeks to run. Wool buyers and their agents often seem to operate like a mob of sheep in a gateway, however, so if one or other of the bigger players decides to use this lull in proceedings to step in and stock up, it may very well create a rush for the opening and the correction factor will be forgotten.

Despite the trade feeling the need for a correction to alleviate some pressure and price resistance the fundamentals for the Merino industry have not changed, and arguably increased given the supply side constraints. Consumer demand for high quality, ethical, sustainable, good value products has not decreased even though the unit cost for some has gone up.

The very small market share held by Merino in the apparel industry these days to some degree provides protection from the price issue. As those most sensitive to price have long since shifted away to cheaper garments, leaving the merino industry with really only the upper end of town as customers. For these consumers a 10 per cent increase in shelf price is less of an issue than for the battlers, as elitist as that may seem.

Superfine: Even while the rest of the market was in retracement mode this week the better tested superfine lots were firm to slightly dearer. This will continue regardless of where the bulk market goes as buyers of these types realise the limited supply and the seasonality associated with their raw material. How much drought affected fine superfine wool appears on the market in coming months will be interesting, but to date the quality seems not bad enough to cause major discounting.

Medium Merino: Next week sees a nationwide total of 35,000 bales on offer and a dwindling proportion of medium Merino. The volume of 22-micron and coarser merino available this season is going to cause some processors to rethink their production programs as they will simply be unable to purchase the volumes required even if the price increases comparatively to the superfine types.

Crossbreds: The elastic band between crossbred wools and their Merino counterparts is getting stretched to incredible proportions. Normally the 28-micron price is around 50pc of the 21-micron price, but it currently sits at around 42pc. Often, we will see substitution or blending come to the rescue of the finer crossbreds to drag them closer to the Merino prices, but price resistance and an overhang of stock in the pipeline is preventing this at present. Final demand for the products commonly made from crossbred wools such as coating materials, hand knitting yarn for sweaters and upholstery need to lift before we see a sustained recovery in these wools.

- Bruce McLeish is Elders’ northern zone wool manager. 

RELATED STORY: ‘Smaller offering dramatically lifts wool market’.

The story Wool market comes back | Elders first appeared on Queensland Country Life.


From the front page

Sponsored by