Wool market closes on 1943c | Elders

Wool market closes on 1943c


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WOOL PRICES: AWEX's Eastern Market Indicator closed 4c lower on 1943c

WOOL PRICES: AWEX's Eastern Market Indicator closed 4c lower on 1943c

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AWEX's Eastern Market Indicator closed 4c lower on 1943c.

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THE Australian wool market again showed no great change with AWEX's Eastern Market Indicator closing 4c lower on 1943c as good Merino fleece became a little bit dearer, poorer quality Merino fleece eased somewhat, and crossbreds gained 20c or 30c.

A very repetitive story is playing out, over and over again, but at current price levels nobody in the growing fraternity has an issue. Just add water and life would be very good indeed.

AWEX's Northern Market Indicator closed down 7c on 1986c. The 17 micron indicator closed on 2512c, 18 micron 2422c, 19 micron 2299c, 20 micron 2277c, 21 micron 2268c, and 22 micron 1205c.

Further along the chain it is a different story with some pockets of enthusiasm, but also some areas of concern. Many of the more traditional processors making worsted suiting material for menswear and uniforms are reporting challenging conditions.

Retailers and owners of brands have not had a good selling season and so are reticent to place volume orders for the upcoming season, for which production is now taking place. So, the processors are faced with the dilemma of whether to continue producing fabric or slow down and wait.

Given the long production timeline to produce a bolt of fabric, just in time is an idealistic concept, but in reality, becomes very difficult. With the intricacies of modern fabric, simply producing a plain grey or black line is not a possibility either.

The average worsted fabric 'collection' contains up to 2500 variations of colours, finishes, weights and blends. Even a more basic uniform fabric may have dozens of permutations and possibilities within the basic navy or black fabric, so it is almost impossible to produce something without a firm order in hand.

Taking a punt on what type of product is likely to sell becomes a huge risk, where the wrong guess at best, results in the fabric having to be discounted in the future, or at worst remaining in the warehouse for another season or two. In the woolen sector with a much shorter production process and more flexibility for longer, production decisions can be delayed until closer to the end product. And in this sector demand is certainly much better and more active.

Both in the new innovative products on the market, and the 'older' generic woolen items business is ticking along at a reasonable pace. The Chinese domestic season is in full swing according to some reports, although some are lamenting the lack of a 'hot' product this year like fake fur and double-faced fabric were in previous seasons. There is enough product being ordered to keep things moving, and greasy wool purchases are being made accordingly.

On April 1 China's government added further stimulus to their economy in the form a reduction in the VAT percentage charged, and ultimately refunded when goods are exported. - Bruce McLeish, Elders

On April 1 China's government added further stimulus to their economy in the form a reduction in the VAT percentage charged, and ultimately refunded when goods are exported. The reduction from 16 per cent to 13pc has had mixed results, but certainly created a flurry of business among some who had been sitting on the sidelines wondering whether or not to purchase raw material.

For goods to be sold in the Chinese domestic market it has not made a huge difference as the VAT simply gets passed along the chain, but for goods destined for the export market it has created more of a boost. The bigger issue remains the trade negotiations, not just from a monetary result, but more from a confidence perspective. With China's vice-premier scheduled to meet with President Trump on Friday, Washington time, hopes are building that a deal may be imminent.

Rumours have been growing that China has recently put much more tangible pieces on the table, and the fact that this high-level meeting is now taking place back up the stories of progress being made. Any deal still needs to be inked by both Chinese President Xi and Mr Trump, as well as the US Congress, but it seems that at least we have passed the potential point for a return to tit-for-tat sanctions that were so damaging to both major economies as well as the global status quo.

Recent data released from China hints that their period of economic slowdown may be bottoming out - at least temporarily anyway, with the Chinese Purchasing Managers Index for both the manufacturing and service sectors moving above the delineating line of 50 for the first time in five months. A sign that perhaps the stimulus measures are working, although Chinese economic data releases are often viewed with some scepticism at times.

Other data releases around the globe have been less favourable with Germany in particular creating more than a bit of angst, as their manufacturing sector reacts to the Chinese slowdown and the turmoil of Brexit. Should the stars align and a deal be consummated reasonably soon between China and America, and just perhaps the Poms find a way out of their current mess, the world can hopefully avoid a situation where Central banks are forced to use their few remaining cards in their hands for stimulus measures.

It may prove to be a big ask, but a boost in consumer confidence will go a long way towards keeping the wheels turning to avoid a nasty correction, not just in a global economic sense but also in the wool industry. Normally the cycle of boom and bust would have seen the wool market react to the current price resistance with an accompanying price correction. The lack of supply in Australia, coupled with the South African FMD ban have so far prevented this from occurring, but the pressure is still there. A late season boost to confidence to get brands more active may just be enough to stave off a mid-year price correction - only time will tell.

- Bruce McLeish is Elders northern wool manager.

RELATED STORY: ‘Wool market moves 'sideways' to close on 1946c’.

The story Wool market closes on 1943c | Elders first appeared on Queensland Country Life.

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