Market uptick welcome but industry is not getting carried away

Wool trade proceeding with caution

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Wool prices have clawed back losses experienced since August, but there is continued uncertainty in global markets.

Wool prices have clawed back losses experienced since August, but there is continued uncertainty in global markets.

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Last week's wool prices rises welcome but market conditions remain volatile.

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Despite the COVID-19-induced turmoil in many other areas, the wool market is quietly going about the business of getting back to a more 'normal' setting - with prices increasing enough last week to wipe out a fair portion of the previous week's losses.

The Australian Wool Exchange Eastern Market Indicator (EMI) increased by 26 cents a kilogram, to get back above the $10 level.

Most Merino fleece indicators closed up 20-40c/kg, with skirting types recording a similar rise.

Crossbred wools continued to slowly climb off the canvas, and the carding sector was almost comical in its cautious move upwards by comparison.

With a relatively stable currency market - despite the ongoing 'circus' in America - the move in US Dollars was fairly similar, with an increase of 20c/kg. European customers also saw a 17c/kg upturn.

The wool trade is very aware that, although the market has risen from the depths of despair that it was in back in August, there is still a long way to go - and something could yet turn up to burst the balloon.

The smaller quantities of wool being offered and purchased to date this season - even compared to the virtual Australia-wide drought-affected quantities of last year - add to the volatility.

When a few new orders appear in the market, or one buying entity decides to put its foot down, the market can shoot upwards.

Then everyone gets concerned about whether they should follow or not; or ponders whether there will be a change of heart from those who were aggressive last week; or considers whether growers will use this signal to flood the market with wool from the stockpile. This is resulting in a plunge in prices again.

Such is the nervousness throughout the trade at present.

But the market is still able to claw its way forward, and should continue to do so for the remainder of this calendar year.

Current demand being fed back into the market is certainly not the typical 'bread and butter' wools.

Worsted suiting, especially in the menswear category, is still very sluggish - with so much of the western world's population either yet to emerge from lockdown, or about to be sent home again.

Conversely, womenswear is faring much better due to either a desire to maintain a sense of style on a video conference, or just an innate ability to continue to shop.

But knitwear processors are sending clear demand signals, albeit in smaller volumes than we would like, all the way back to the greasy auction rooms.

The processing methods being used for these generally pure wool sweaters are both semi-worsted and traditional woollen spinning. This means that, at present, fibre length and strength are not as critical - so we are seeing virtually no discounts for overly-long or tender wools.

This may change at a moment's notice. But for now, the early stage processors in the right sector are hoovering-up wool regardless of specifications.

Some of the traditional European mills have cautiously put a toe in the water to get hold of raw material, and there has been an increase in retail - and therefore processing - activity in China during the Golden Week sales.

Most of the garments being sold in China are at the finer end of the micron spectrum and some, no doubt, are being blended or called cashmere.

Hence the stronger demand for 16.5 to 18.5-micron greasy wool, a lesser demand for 19.5-micron and not much at all - by comparison - for 21.5-micron types and broader.

This could all change quickly when the annual Chinese military uniform order hits the market.

Everyone involved in the production of uniforms knows that this usually comes around each November, but it is sometimes slightly bigger or or smaller than the year before.

Given the reduction in price, there could also be a swing back towards more pure wool and less polyester - and possibly more finer micron fabric as well, rather than the previous 22.6 generic wool/poly fabric.

Two million soldiers do need to look smart and feel stylish on parade, so hopefully the purchasing officers will take the opportunity to load-up on uniform stocks this year.

Government stimulus aside, the retail picture in China is probably showing Europe and America - and even Victoria - what the other side looks like.

China would have us believe that it has conquered COVID-19 and domestically the country is returning to 'normal'.

The recent holiday period of Golden Week overlapped with the Mid-Autumn Festival, which extended the holiday period by an extra day.

The Chinese government has promoted national destinations and consumption via its National Consumption Promotion Month 2020 campaign, which urges citizens to travel domestically, visit families and shop.

Although early indications suggest the total spend will still be lower than last year - when the 70th year anniversary celebrations added to spending fervour - vouchers, deals and incentives have created a significant uptick in retail and travel.

Official Chinese data is usually taken with a slight degree of scepticism by many, and the current rhetoric from Beijing is reaching fever pitch in their domestic newspapers, but everyone agrees China's consumer spending is back in positive territory.

The Chinese domestic market is not enough in itself to push wool prices back to where many would like to see them, but it will provide a very good start.

When Europe gets the second wave of coronavirus under control, and when America gets its election out of the way, we can hope to build on the foundation that has been laid in the past few weeks.

Given the uncertainty on either side of the Atlantic, it will not be a straightforward process. Therefore, the market will not follow a straight line upwards either.

The story Market uptick welcome but industry is not getting carried away first appeared on The Land.

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