Wool holds on as demand kicks

After four consecutive rises in the new calendar year, cashflow problems and a significantly larger offering conspired to reverse the market direction.

It is certainly not a permanent or structural change at this point. But with 56,000 bales on offer again this week, it will be a challenge for the market to arrest the slide in the short-term.

Buyers are struggling to pay brokers for wool and then fund the purchases until client's funds are received after actual shipment has occurred, stretching their financial resources.

Demand continues from different parts of the world and good specification wools at the finer end of the micron range, particularly those with sustainable certification and non-mulesed wools, were virtually unchanged in price during last week.

Growers who have made the decision to cease mulesing are seeing a further monetary benefit for their efforts, with less discount than those "normal" wools in a discounting market - and the premiums achieved for wools with one of the sustainable certification labels attached are still significant.

So much so, that the South African umbrella organisation, Cape Wools SA, has needed to change its market reporting to distinguish between the "haves" and the "have nots".

Swings of more than 5 per cent in the market indicator purely based on the number of certified wools in the catalogue have been playing havoc with its market reporting, hence the move to spilt the market report into a non-Responsible Wool Standard (RWS) and an RWS indicator.

As the volume of RWS wool in the Australian catalogue increases, a similar change may need to be made here.

But it would also be fair to assume that the premiums will be diluted when more quantities do become available and reduce the scarcity factor. The early signs of this are emerging in the Cape market at present.

The Australian market had an overall drop of 27 cents a kilogram last week based on the Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI).

But currency fluctuations meant that the US Dollar prices were only down by 13c/kg, and Euro prices were 21c/kg cheaper.

Medium Merino fleece was most affected, with falls of about 50c/kg.

Superfine Merino fleece generally only fell 20c/kg - as a dedicated superfine sale in Sydney held up the quality of the offering, keeping the European and high-end Chinese operators busy.

Knitwear types in the fine and superfine areas were quoted dearer as the micron got finer and this was also true for the carding sector, highlighting the growing strength of the demand in this part of the clip.

Crossbred wools lost some of their recent lustre, with 20-25pc of these failing to sell in the north and the west. But 90pc offered managed to be sold in the south after a 20c/kg price adjustment.

Signs from across the Tasman continued to be positive, with another 3-4pc added to prices of the previous week.

While still coming off a very low base, the continued rise of the coarse crossbred end in New Zealand does provide more optimism for Australian crossbred wools, and signals that we may have weathered the storm.

Volumes of greasy wool sales in South America are beginning to tick up now, with some of their crossbred stocks beginning to move also.

But with the European clip beginning to be harvested in the next couple of months, holding back crossbred wools expecting a significant rise in the Australian market would still be a large gamble.

Demand for wool is widespread at present, with inquiries being fielded from Russia, back to Europe, down to Northern Africa, India, China - of course - and the rest of Asia also beginning to re-emerge from the Lunar holidays as well.

All these processors are buying greasy wool, or wooltops or carbonised wool and then gnashing their teeth at the slow delivery times that make production planning a nightmare.

Ships are often skipping a port to make up time on their delayed schedule, meaning an extra road transport leg is involved to get the goods where they need to be - and truckers around the world are a little antsy at present it seems.

Or, simply, the vessel is one or two weeks late arriving at the destination and the flow-on effects for the future sailings just domino down the calendar.

Some price resistance is also starting to emerge at the superfine end of the clip as well, with spinners baulking at the increased cost of 16 and 17-micron wools, in particular, and in some cases switching over to 19-micron instead.

The bigger mills in China have resumed production after the Chinese New Year holidays, and the smaller mills will mostly switch on the lights this weekend.

Getting the required number of workers back after the holiday period is always a challenge, but it will be more acute this year with travel restrictions and quarantine testing simply making the whole process more complicated and cumbersome.

This is blowing out the lead times for deliveries even further - and increasing the angst of customers across the globe.

So, while demand is quite good, and the market will hopefully be able to absorb the larger quantity in next week's sale without too much further price damage, the flow of wool and cash along the pipeline is causing problems.

On top of this is the volatility in currency markets, which can make or break an international deal.

During last week, the Australian Dollar rose above US0.7250, and then dropped like a stone to US0.7150 when the USA CPI figures came out much better than expected.

A little bit of inflation is good, too much is bad, but squashing the emerging recovery by raising interest rates too quickly is a delicate balancing act.

Given that so many high-end consumers - wool's customer base - are heavily invested in shares and bonds, the fortunes of these markets can directly affect their confidence and therefore the desire to buy these woollen products which are in the pipeline at present.

Hence the concern at each stage of the pipeline to get goods produced, delivered and paid for by the next client along the chain before something throws a spanner in the works.

Many of these people are optimistic, but also nervous at the present time.