AUSTRALIA’s wool market continued to perform strongly during the past week with AWEX’s eastern market indicator adding a further 9c to reach 1449c/kg.
AWEX’s northern market indicator closed up 9c on 1530c. The 17 micron indicator closed on 2093, 18 micron 2017c, 19 micron 1806c, 20 micron 1562c, 21 micron 1442c, 28 micron 704c, and 30 micron 546c.
The Woolbrokers Association’s Chris Wilcox in his weekly NCWSBA newsletter says this is the highest point on a like-for-like basis since May 1988.
The increase in US dollar terms was lower with a token increase of only 3c, whilethe European fraternity saw wool prices rise by another 8c to record the highest ever prices in Euro terms. Superfine wools continued to move upwards last week, but with much less exuberance than in previous weeks, and medium Merino fleece types narrowed the gap somewhat with strong rises.
The differential between microns in the superfine area is getting large enough to begin to cause some angst further downstream, but the industry has dealt with these prices difference before, and no doubt will again. Crossbred wools, particularly 28 micron and finer found good support gaining up to 30c.
Across the ditch in New Zealand prices also jumped considerably. The knitwear industry is beginning to show signs of price resistance with buyers starting to look at alternative blends to make the ubiquitous 19.5/60mm pieces wooltop. The carding sector continues to gain momentum for the short term, but the seasonal peak in demand for this sort of wool is expected to appear within the next month so it will be interesting to see if the carding sector again leads the way for the rest of the market to follow.
Apart from the knitwear industry there is not a lot of talk about price resistance at present. Topmakers are still able to sell their wares at current replacement prices for quick shipment. The constant discussion about shipment dates after something is sold indicates not only a lack of stock downstream and pressure to produce yarn and fabric, but also nervousness about holding stock at these ‘high’ prices if the market does turn.
The discussion about current price levels, and where we will go to for the next season will start to heat up in the next few months when retailers talk to their suppliers about products to be delivered for the 2018-19 season. Some will no doubt be asking how to create a cheaper version of their sweater or suit, while others will simply continue with business as normal and marketing their premium merino products. The futures market for superfine wools is the most positive it has been in years, if not ever, with contracts for 18/19 micron wool being written at good levels as far out as July 2018.
Others involved in the production pipeline will be licking their wounds and wondering why they did not cover their raw material prices before Christmas as their suppliers were urging them to. Unfortunately when the wool market rises strongly somebody will get burnt. As a result of the current market level prices for final products will rise next season, leading to a lower demand situation, and therefore wool prices being reduced. So the boom and bust price cycle for wool continues. Perhaps one day, more people in the industry, not just woolgrowers and exporters, but also topmakers, spinners and weavers will look to use the futures market to protect their business and take out some of the extremes of the price movements. On the other hand the current market has been relatively restrained in the pace of increase this cycle.
Back in 2011 we saw price jumps of up to 150c in a single selling week, creating frustration, and perhaps retribution along the processing chain with the inevitable fall from grace being almost as rapid. In 2016-17 the price rise has been significant at around 50 per cent of value, but it has certainly been more gradual taking around 18 months so far, allowing the trade from grower to retailer more time to adjust. Hopefully there will be more productive operations; new products that are less price sensitive and consumer appetite for naturally produced merino garments than those in the price sensitive camp this time around.
The importance of cementing current demand in place, and continuing to develop new products and support initiatives that put the Merino fibre in front of ‘new’ high worth customers at this time cannot be understated. The Woolmark Optim WR Jacket is a prime example, and it is astounding that every merino grower in Australia does not already own one – available on the AWI website.
Although an expensive garment, its relatively high purchase cost can tolerate the current market price, or perhaps even higher when you consider the full retail price that could be achieved in the future. This sort of garment will help take the price resistance question out of the discussion and help the Australian woolgrower much more than the old floor price ever did.
Superfine: Next week’s Sydney sale is the last opportunity for buyers to purchase the best quality superfine Merino in any significant quantity until next season so it would not surprise to see a further boost to the superfine indicators again next week.
Medium Merino: Chinese buyers and early stage processors are turning their focus once more to the medium sector in order to secure more orders on their books once the superfine season is over. After Easter the current round of superfine orders will have run their course, and topmaking mills will be predominantly producing 19-22 micron types again.
Crossbreds: Although some good signs continued last week, there is still some angst in the trade about the amount of stock in the pipeline. Lower supply on both sides of the Tasman is helping current auction results, but it may take up to 6 months of sustained activity to clear current stocks.