ANOTHER ‘half a buck’ was added to the already high wool prices in Australia during the past week as buyers continued to chase, sometimes desperately, quantities of wool to cover orders and ensure machinery would not stop in the coming months.
In both Aussie and US dollar the market added more or less 50c this week with medium Merino and fine crossbred again the focus of buyers. The relatively small quantity on offer nationally of 36,000 bales, of which only 10 per cent or 3595 bales were in the 21-23 micron range that is the major focus of Chinese topmakers at present.
Consequently they were forced to broaden their horizons slightly and all fleece wools from 19.5 to 24 micron gained between 80c and one dollar for the week. Superfine types were not neglected, but more subdued in the level of activity and rises were generally in the vicinity of 30 to 40c. Skirtings followed the fleece market onwards and upwards, and the carding market added a solid 25c across the nation.
The crossbred sector fared differently with strong rises at the finer end, where demand is ‘clear and present’ in the form of fake fur, but the coarser end struggled to find much support and the 32 micron segment actually eased by 20c.
AWEX’s northern market indicator closed up 55c on 1995c. The 17 micron indicator closed on 2786c, 18 micron 2437c, 19 micron 2204c, 20 micron 2143c, 21 micron 2128, 22 micron 2115c, 28 micron 1009c, and 30 micron 703c.
We are seeing a lot of activity from mills keen to ensure their hungry machines do not stop, but we are also seeing genuine demand from further along the pipeline as well.
- Bruce McLeish, Elders
Records continue to be broken each week at present it seems and the wool industry must be close to getting a mention on Alan Kohler’s ABC news segment. Hopefully it is not after the bubble has burst, although there is no sign of that happening in the short term. We are seeing a lot of activity from mills keen to ensure their hungry machines do not stop, but we are also seeing genuine demand from further along the pipeline as well.
It is probably not at a level sufficient to maintain the prices under a normal supply situation such as in September or February, but given the meagre offerings in front of buyers at present it is very difficult to see prices easing. Fake Fur is again being mentioned in Chinese circles as being a factor on the demand side and orders appear to be concentrated in the 21.0 and 26.8 types, which is certainly reflected in the auction analysis this week. We have seen the early stage processing sector overshoot on this product before though, and the current euphoria needs to be kept in check.
There is demand from other sectors coming through as well – albeit with gritted teeth, as the prices are very difficult for the worsted fabric manufacturers across Asia to pass on. After months of discussions, blend alterations and price comparisons some processors have been purchasing their raw material for the next quarter. There will obviously be an increased percentage of polyester in some fabrics, or less yardage produced in some cases, but it has been encouraging to see some of these companies get off the fence.
Many others in various stages of the textile pipeline are sitting back wondering if they should buy something now, or wait until their production department is really demanding it. The risk of buying now seems high, but the risk of doing nothing over the past six weeks has been huge. As Chris Wilcox of NCWSBA points out in his weekly newsletter this bull market, or super-cycle is now in its 112th week.
The analysts are pouring over their charts and wondering which one will prove to be correct. One of these charts will tell the story eventually, and with a right amount of hindsight it will be abundantly clear. At present the fine and superfine categories, which do provide the bulk of Australia’s wool supply look comfortable. They are heading back up towards their year earlier high points (in US dollars) and are more or less within established trading ranges.
When one looks at the 21-micron chart, which was previously the key indicator for the Australian wool clip in terms of production and price setting, the picture is somewhat different. This MPG is banging up against (technical term) the ceiling it set way back in 2011. The bursting of that bubble was reasonably spectacular initially, and we spent the next five years in a downward trend.
Things may be different now in regards to supply, garments that are less price sensitive, more bullish consumers around the world, and the lower importance of the 21-micron segment - but it is worth noting where we are standing, with not much of a safety net below.
Hopefully no net is required, and with only 32,000 bales on offer next week it would be rather exceptional for prices to ease too much. What we cannot afford to do is get too far ahead of the market and think that everything is sorted.
Some of the American fraternity obviously thought this about the upcoming summit with Kim Jong-Un, and he has now taken a step back to remind them that it is a two way street. The wool market will take a step back at some point to remind us that it cannot continue to rise indefinitely, and those who are left still contemplating forward sales will be a tad disappointed.
