THE Australian wool market continued to decline last week as price resistance overwhelmed concerns about supply although the largest processors from China were noticeably on the front foot securing mill fodder.
They had little competition as traders and indent buyers remained on the sidelines, highlighting a lack of day-to-day trading opportunities in the Chinese market.
AWEX's Eastern Market Indicator finished the week 41c lower on 1823c with almost identical moves in both USD and Euro terms.
AWEX's Northern Market Indicator closed down 41c on 1842c. The 18 micron indicator closed on 2238c, 19 micron 2144c, 20 micron 2128c, and 28 micron 1093c.
The fine Merino categories suffered the largest falls as poor-quality wools were discounted and a general lack of demand hit home. The medium Merino fleece and skirtings found better support with some ongoing demand for these wools evident from the Chinese market but still declined by around 50c on the AWEX micron price guides.
Crossbred wool which was well prepared saw good support, but those growers still "throwing it all in" incurred the wrath of the trade as they are simply unable to use these wools in blends with finer wools. The carding sector continued its cyclical downturn as is usually the case at this time of year.
As we approach the end of the season many questions are being asked about what we will see in terms of price for 2019-20. At the same point last year, we were in exactly the same position albeit at a higher base. The EMI in Australian currency was almost 200c higher (2021c), and in US dollar terms the market was 260c higher than today (1528c).
Then, the market was treading water, trying to go down, but unable to do so because of limited supplies of greasy wool. Demand was waning in the usual seasonal decline, and price resistance was a growing factor. 21-micron wool was then dearer than 20-micron as is nearly the case in the current market with some quoting 19.5 lower than 21-micron last week - in fact in Fremantle last week 20 cents would cover nearly the whole Merino fleece range from 18 to 21 micron.
A year ago, China was struggling to keep the market moving in the 'off-season' and many were buying just to keep mills busy.
- Bruce McLeish, Elders
A year ago, China was struggling to keep the market moving in the 'off-season' and many were buying just to keep mills busy. The market did have a surge in late June 2018 on the back of a drop in the value of the Australian dollar, when it fell to US73.5c - with the currency trading at US69.15c at present there is less likelihood of the same event occurring in coming weeks. After that one-week spurt the market generally drifted lower until August when it suddenly gained a dollar based on a flurry of Chinese buying to support the fake-fur fashion phenomena. After that spike, the market drifted lower during the Australian spring before finally kicking into gear in November.
So, using the wonderful tool of hindsight a case can be built for the Australian wool market to more or less drift along for the next few months with mills forced to crank up their buying over the next three weeks to cover the annual three week recess in July. After a brief flurry of activity for restocking in August when sales resume the market will be searching for that 'signal' from upstream.
If the Chinese fashion gurus can get fake fur to boom again this year we may see some major activity. However, this year the fabric has all been made from crossbred rather than the Merino creations of last year. Uniform orders from China are always a bit of a saviour for the market at this time of year, and there may be more of those in the wind, but nobody is really sure until they hit the streets - although a few fabric mills seem to be gearing up again this week.
The best laid plans however can be cast onto the rubbish pile by when something from left field come into play. A historical chart of the wool industry is littered with points on the graph showing 'interrupters' such as SARS, the Asian Financial Crisis and of course the GFC.
No doubt the US-China trade war will be one of those dots in the future as it has certainly had a negative impact on many markets including the wool market. With negative influences beginning to show up on the American economy as well, Mr Trump is fast running out of time to resolve this issue.
The rhetoric has gone up a notch from both sides ahead of the planned meeting in Japan at the end of the month. Mr Trump has a list of five key points he wants agreement on, and China has drawn a line in the sand publicly stating that they will not give in on certain issues. So, the clock is ticking for both sides to find a way forward, but both leaders are digging their heels in to shore up votes at home. Hopefully a tranquil Japanese garden setting can make them accommodative enough to find resolution.
Elsewhere life goes one, with the UK undergoing a long drawn out process to find a new leader. In what may become the hair stylist nightmare, Boris Johnson looks almost certain to join Mr Trump on the world stage. The Europeans will no doubt be gearing up for some interesting conversations if he does prevail, but one way or another Europe would like to put this saga behind them so that they can concentrate on keeping their own ship moving in a straight line.
So, the wool market continues to face its share of challenges from within and externally, but overall the picture remains positive. In Pitti Uomo the previous week the emphasis was squarely on natural fibres and their benefit to the planet on which we all live. Despite a downturn in the price of synthetic fibres, as some of the huge Chinese manufacturers empty their stockpiles, many processors and designers continue to demand natural, sustainable and ethical fibres to create garments for a more environmentally conscious consumer. This will hopefully translate down the chain to increased demand and therefore better prices in the new season.
