Small volumes lift wool market | Elders

Small volumes lift wool market


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GLOBAL SQUEEZE: The Australian wool market experienced another strong week on the back of small volumes.

GLOBAL SQUEEZE: The Australian wool market experienced another strong week on the back of small volumes.

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The Australian wool market experienced another strong week on the back of small volumes available globally.

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AUSTRALIA experienced another strong wool market this week on the back of small volumes available globally and early stage processors keen to avoid stocks getting too low at a time of year when it is nigh on impossible to purchase any large volumes.

The value of the Australian dollar moved about quite a bit, from a starting low of A75.3c to a peak of A76.3c and ended the week in the middle of this range. Wool prices in US dollar and Euro terms rose by a similar amount to the Aussie prices.

AWEX’s eastern market indicator increased by 28c to 1506c in local terms, US31c, and Euro32c. Fremantle was playing catch up after missing the action of last week so their market rose by 60c. Superfine Merino types fared quite well, but it was the medium Merino area that held buyer’s concentration and saw 50-60c rises for 20 to 22 micron types. Skirting and knitwear types followed suit, as expected and surprisingly carding wools were more or less unchanged. The crossbred sector continues to edge back up again with gains of 10c or so.

AWEX’s northern market indicator closed on 1575c, up 30c. The 17 micron indicator closed on 2197c, 18 micron 2123c, 19 micron 1870c, 20 micron 1638c, 21 micron 1554c, 22 micron 1485c, and 28 micron 767c.

Around the world processors are reporting sluggish activities in the main so the majority of the buying activity in auction would appear to be topmakers feeding machinery. There is still a little bit of product moving through the pipeline so we are not yet building an alarming level of stock in the system by any means.

Some late season activity in India is helping keep the pressure on Chinese interests as well as a smattering of European orders, thus the Australian wool market remains quite strong. The 21-MPG has now broken above its recent trading range in both Australian dollar and US dollar terms, which is unusual, but not without precedent at this time of year.

The last time during this season that the 21-micron type broached the 1500c level, it quickly fell back the following week. However, the wool market has been on a rising trend for the past two years so the ceiling has to be removed at some point if this trend is to continue. The cautionary point must be whether to expect enough underlying strength in the market to sustain a break above 1500c at this time of year.

In previous times, as recently as 2015, the greasy market surged by a couple of dollars in June, but as prices were not passed on along the chain, it fell back just as quickly. We are only looking at increases of 70c or 80c over the past couple of weeks for the 21-micron types, but to date wooltop and yarn prices have not followed this trend.

The danger exists that topmakers will be left carrying the can, and be forced to look for alternative sources of greasy wool (Chinese domestic or crossbreds) to stem the blood flow. Having said that, some processors in China have seen a sudden resurgence in fake fur (19.5-21 micron) orders as well as small quantities of uniform business (21-22.6 micron), which does help pull through the product, if not always lift prices.

With only a small volume of wool available again next week as Fremantle takes another week off, there is expected to be little chance of an easier market. The big picture would suggest prices should not rise, but it really only take two or three buyers in the auction room trying to fill orders and the market can get quite heated.

The futures market has followed the physical market to a degree, with close in prices rising by as much as 60c for August settlement of 21-micron and prices as high as 1400c through until December now on offer. Despite the good season being enjoyed by much of the country, wool production is not expected to rise significantly next season so buyers are keen to secure some supply, not against forward orders so much, but purely when they know processing requirements will be ramping up again. Interestingly the cotton futures market has eased significantly as production looks like increasing again on the back of favourable growing conditions.

There is a much large speculative factor in the cotton futures market than the wool futures, and a lot of these participants appear to be unloading their positions and driving the prices down again. The connection between wool and cotton has become less rigid in recent years as wool moves more towards the luxury niche fibre status, but it remains something to watch and be mindful.

As Chris Wilcox reported in the National Council of Wool Selling Brokers weekly newsletter consumer confidence is rising in all the key markets for wool at present. Consumers in the US, Europe, China, Japan and South Korea are all happier than they have been for many years. Hopefully this will translate through to more garment sales in coming months, and if more individuals join the move away from wasteful, polluting fast-fashion it will bode well for the 2017-18 wool-selling season.

Superfine: The few true superfine lots available at this time of year are selling well, although the underlying basis continues to contract compared to the medium Merino sector. This is a healthy sign, in that it will prevent prices from getting out of kilter when there is really not much going on in the sector. Fundamentals for the superfine sector remain positive and optimistic for a restart in August.

Medium Merino: Similarly the medium merino sector looks good, but the greasy market needs to keep in touch with downstream prices to avoid a short-term blowout.

Crossbreds: Steady as she goes for the finer crossbreds, but still not a lot of light at the end of the tunnel for the coarser carpet wool types yet.

- Bruce McLeish is Elders’ northern wool manager.

The story Small volumes lift wool market | Elders first appeared on Queensland Country Life.

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