Likely lack of supply a fine problem to have - at this stage

Wool rides on the back of superfines


Buyers appear to be worried about stocks of superfine wool as they scramble to fill orders.

Demand for wool at the fine end of the clip has continued to underpin a slight trend up in weekly prices as buyers scramble to get supply.

Demand for wool at the fine end of the clip has continued to underpin a slight trend up in weekly prices as buyers scramble to get supply.

The wool market in Australia was buoyant again last week, with continued strong demand for superfine Merino categories eventually helping to push just about every wool type along with the tide.

The currency market, in comparison, was relatively benign. So, the 30 cents a kilogram increase in the overall wool market in local terms was mirrored with a US26c/kg rise and Euro 22c/kg boost for the week.

In a similar tone to the previous week, the market was all about superfine Merino, with other categories just "making up the numbers" it seems.

A quickly-waning supply of superfine Merino wool, in a year when the clip is also much broader due to last year's better rainfall, means buyers are scrambling to fill orders.

As the traditional offerings of superfine Merino are expected to peter-out in the next few months, the market faces yet another challenge of finding a suitable demand replacement.

Medium Merino prices lifted towards the end of selling last week - when there was nothing else to buy.

But until then, 19 to 22-micron types had struggled to find the momentum shown by the superfine end of the market.

Crossbred wools managed to survive another week, but cardings - especially locks - appeared quite strong.

So, the market is delicately poised now. It has had a great couple of weeks - against expectations; been driven by the finer types - which are set to run out; held back the deluge of crossbred wools; and, as yet, it has not found top gear in the bulk categories of 19 to 21-micron wool - which is what Australia produces most of.

There were a few murmurings about Chinese uniform orders last week.

But there appears to be, at this stage, limited stimulus - or saviour - orders from the Chinese government to keep some of the bigger mills running.

The worsted suit market continues to decline, with office workers obviously not renewing their corporate wardrobe last year.

Many look like they will still be wearing tracksuits and T-shirts at home for the first half of this year.

So, the strength of the wool market over the past two weeks has been in direct contrast to the actual demand situation, and driven by the bigger topmakers in China aggressively rebuilding their raw material inventory.

These operators are about to shut down for the Chinese New Year - also known as Spring Festival - in February, and some were rumoured to be planning a longer break than the traditional two weeks.

Although, now the government has asked them to rethink this strategy and perhaps delay the shut-down to keep workers in place and reduce the annual migration of hundreds of millions, which could ignite a massive COVID-19 outbreak.

As Beijing pulls down the shutters on more and more cities to contain virus outbreaks, the uncertainty mounts about who is going where - and which factories and industries will continue to operate.

Perhaps the woollen mills are just keeping their options open and making sure their warehouses are full, given the long lead time from Australia and South Africa if they do decide to work a few extra days.

But if everything comes under control in the next week or so, and the Chinese New Year festival goes ahead as usual, there will be a fair bit of greasy wool in the pipeline - with export orders very hard to find and a domestic market looking for spring-summer clothing and not winter woollies.

Of course, it may just be that the Chinese mills are being astute and stockpiling goods ready for the emergence of European buyers during the next month, when the COVID-19 vaccines kick into gear.

With shipment times from China to Europe blowing-out by at least a month - and tripling in price - just-in-time is not going to work in 2021.

Perhaps the smattering of uniform orders is just the start, and there will be a massive stimulus effort announced around the time of the Chinese New Year.

After all, the wool portion of the textile industry in China does employ at least a million people and they need to be kept gainfully employed.

The Chinese economy was the only large-scale economy to grow during 2020, and it posted an annual growth rate of about 6.5 per cent.

At present China does not consume all of the Merino wool that it imports, and the industry is sorely missing those traditional export orders.

But maybe someone has joined the dots and decided wool will be the cornerstone of China's ascendancy in the next couple of decades.

The stated aims of the Chinese government, which will be reinforced and updated around the time of the Chinese New Year - following the recent planning sessions - include a much stronger emphasis on renewable energy, less carbon output and better environmental controls.

Producing garments which, in many cases, are world-leading in terms of fashion - but at the same time are environmentally friendly, sustainable, last for many years, require much less washing and are biodegradable at end of life - may just be the answer to all of these goals.

If the thinking in Beijing is not this clear cut, and Chinese early stage processors are not stocking-up in anticipation of this new policy direction, the wool market may be a little volatile during the next month or two as supply and demand sort themselves out.

It has been a refreshing change to see some of the Indian mills purchasing again, after being quiet for many months. And no doubt there will be some interesting conversations going on about the old dishonoured contracts - which need to be remediated alongside any new business.

In the broader picture, new US President Joe Biden has taken over the reins in the White House, and spent the first few days handing out stimulus cheques and putting a COVID-19 strategy in place.

Despite the critics, the virus vaccine programs are being rolled-out across the globe and, although the effect will not be immediate, day-by-day the number of people who are susceptible to the virus is reducing.

When it reaches a certain proportion of the population, the decrease in new infections will become exponential.

Then we will see a rebound and rebuilding start to occur, and the green shoots of a commodities boom that is kicking-about now could become a full-blown surge.


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