Knitwear’s comfortable boost

The Eastern Market Indicator (EMI) fell a couple of pennies in local terms, while rising a couple of cents in US dollar terms. 

Buyers showed they are still keen to pursue the better tested fleece lines in all microns, while discounts for off styles rose slightly given the volumes of these wools in the catalogues. 

Knitwear types being those shorter wools, pieces, bellies and cardings all rose quite strongly as buyers’ gear up for the season ahead. 

Crossbred wools are still in the “off season” as far as consumption is concerned, and a large offering meant prices eased slightly, however, there are emerging signs that demand for these wools is not far away. 

The market in South Africa where growing conditions and other factors generally allow for more favourable processing capabilities of its wool meant a solid rise of one per cent last week. 

Buyers from China and Europe are enthusiastically chasing the sound fleece types in this market to counter the high volume of lower strength wools in the Australian catalogue. 

A very small offering in New Zealand lead to prices rising and while its Merino quotes were playing catch up to the Australian market of the previous week, crossbred prices were up to 4pc dearer mainly on the back of lower currency and a catalogue that was only just over 5000 bales. 

The question for the wool market is to determine if wool is a commodity, as it has historically been, or whether the current and future size of the industry makes it a niche fibre and immune to the overall movement and trends in larger commodity markets. 

This week saw copper hit a six-year low, gold is currently trading at five year lows, and other commodities such as oil and iron ore are also bubbling along at multi year lows. 

Wool in US dollar terms is travelling only slightly better with current prices not far off a five year low, but looking to rise when the outlook for other commodities is bleak. 

The big difference for wool compared to other commodities however is supply or a lack thereof. 

The roster for the next three weeks leading up the annual Christmas recess is 32,000 bales lower than what was actually sold for the same period last year. 

Given that the final sale in December will not be huge, the volume of wool available on the market this season will fall a long way short of last year’s volumes. 

This may well be the trigger that sees wool rebound when other commodities are still languishing in oversupplied circumstances. 

Certainly until the auction market showed a few wobbles this week the prices for futures were bullish and this indicates that some business is being transacted at an international level into the new year. 

Prices for 21 micron had been offered around cash until April with only a small discount into spring 2016, illustrating the confidence from overseas buyers that current prices are sustainable in the longer term. 

Of course the over riding caveat as always is the currency situation and although it would seem pretty clear that the US will raise interest rates in December, where the Australian dollar or the Euro will be in four days time, let alone four weeks time is a guess at best. 

The underlying fundamentals that make an interest rate rise in the States inevitable does also bode well for the consumption of apparel. 

The recent development of several new casual or sporting wear woollen garments should actually allow wool to participate in the recovery of the US economy. 

For generations the US market has been relatively underweight in terms of wool given their love of cheap synthetic casual wear. 

Now with a growing focus on renewable, sustainable garments that actually perform as they should, wool consumption in this market has the potential to really grow. 

So despite another week of Chinese quota issues and restrictions on cash for Chinese processing companies the outlook for the wool market continues to promising. 

Although unlikely to return to the giddy heights of 2011, superfine wool is enjoying solid demand even if the buyers remain selective about the quality parameters. 

Despite the major market of China being a bit subdued for reasons discussed previously, medium Merino stock levels are still minimal indicating that things are turning over enough to keep the pipeline relatively empty. 

Other markets such as India and Europe are doing enough to take up the slack at present, and come January with a fresh allocation of quota and overdrafts the pace in China will pick up again. 

Even with the second largest weekly offering of crossbred wool for the season prices held up well and the market looks comfortable on the charts so further downside will be limited.