LIKE New Year’s Eve fireworks, the wool market opened with plenty of vim and vigour this week with spectacular gains for all Merino types.
From when the first salvo was fired in Melbourne on Tuesday until the close of activities on Thursday afternoon in Fremantle, buyers competed strongly to secure what they needed in a fairly small pool of supply.
A total of just over 50,000 bales were offered, but only half of this volume was Merino fleece, with the remainder being skirtings, oddments and a lot of crossbred wool. No doubt some buying houses are struggling to find enough volume to fill orders of Merino fleece at present, particularly if those orders are less than 19.5 micron.
Analysis by Andrew Woods at ICS in Wagga during the week indicates that the shift in the national clip micron, as a result of better seasonal conditions will dramatically increase the available volume of 23-25 micron wool – from a low base, but by the same token facilitate a significant decline in the supply of wools 18-micron and finer through until April 2017.
This coupled with demand from China and Europe for good quality superfine types has seen the 17 and 18 MPGs add up to 150c in a single week. 21-micron by comparison rose a relatively subdued amount, and only increased by 75c across the week. Skirtings and shorter wools were strong, without getting too out of control, and the carding wool indicator increased by 30c.
AWEX’s northern market indicator closed up 78c on 1490c. The 17 micron indicator closed on 1943c, 18 micron 1861c, 19 micron 1733c, 20 micron 1587c, 21 micron 1495c, 22 micron 1444c, 28 micron 662c, and 30 micron 579c.
Crossbreds, for a long time, the unloved cousins in the market, unfortunately are still relegated to the corner and while 28 micron wools increased slightly, 30 micron wools actually fell during the week, showing the lack of demand for these coarser types at present. Similar trends were observed in New Zealand for the carpet wool segment, showing that recovery for these wools is still yet to arrive.
Demand in the pre-Christmas period had been getting a little unbalanced with the topmaking fraternity being left on their own as spinners, knitters and weavers sat on the fence. Now, all of a sudden the latter stages of the industry have awoken and realised that their raw material stock levels are low, and many are looking to buy prompt stocks to keep their machinery running. A bit of panic has set in around the traps, with some purchasing managers now finding it difficult to secure what they need, having ignored offers back in November and December for one reason or another.
Illustrating the strength of this week’s market, at least for the current time, is the fact that the market continued to rise on Thursday even in the face of 100-point increase in the value of the Australian dollar on Wednesday night. Normally this would be enough of a move to set the market back on its haunches and re-assess the direction, but the superfine wools continued on their merry way, despite the currency headwinds.
Overall in US dollar terms the 17 and 18-micron wools added between 100c and 120c for the week. This magnitude of price rise has not really been seen since the April-June period in 2015 when the market jumped by around $3 in very quick time, only to give back most of the rise over the next six months.
This market may still have more upside in the next week or two as a correction is not usually forthcoming after only one week’s activity, but while the medium term may be a bit volatile the longer-term outlook is still good. The upcoming Chinese New Year (January 28) will no doubt be one cause of consternation, although wools purchased this week will actually arrive in China after the annual factory shutdown, so it is only the absence of fresh buying instructions that will possibly be missing from the market during late January.
The current market trend, even with the extreme movements this week, is following a strong pattern first established back in August 2015. For most micron categories up to 21 there is a reasonably consistent trend of rising prices, in US dollar terms on the charts. It is really only those micron groups over 21 that show up as wobbly on the charts, and this has been a consistent message from the downstream customers in recent months.
Goods being produced from superfine in particular, but also up to 20.5 and 21 micron are in strong demand. Some manufacturers are feeling the pinch, and some are definitely feeling price pressure and looking to blend with cheaper fibres or otherwise decrease the cost of their garments. But, many more are powering along, selling pure Merino garments at today’s prices and looking forward with enthusiasm.
So, no doubt there will be some ups and downs in coming weeks, and some who complain about their lot, but everyone who has been in the wool industry for a while has seen volatility, and has also come to appreciate the true value of Merino.
Perhaps one of the smartest decisions growers can make at present is to book onto the forthcoming Elders tour of China in late March. This will give growers the opportunity to speak directly with customers who are responsible for buying 75 per cent of the Australian woolclip, and find out what they really think about the future direction of the market. Contact your local Elders representative for more details.
