Market positive as buyers seek Euro-type wools

Local prices were higher across the board, with the AWEX EMI rising by 26 cents and some individual micron indicators gaining 50 or 60c.

Merino fleece types with the correct specifications to meet the traditional European types were extremely keenly sought after, as were knitwear types with a low to moderate amount of vegetable matter.

Crossbred wools rose even more than their Merino counterparts in percentage terms, no doubt pushed along by the large number of RWS certified clips on offer this week, which attracted significant premiums.

The market in local currency terms is now back within a whisker of the seasonal high point. This is very perplexing to some overseas buyers, whilst others are fully supportive.

The Chinese domestic wool business is grinding to a halt, along with most other industries in China.

Mills are in the main still able to run, provided workers remain on site 24/7, but moving product to the next link in the chain becomes very difficult, if not impossible.

Some vertical operations obviously continue to produce against existing orders, but then face problems shipping final garments to their domestic customers.

Those mills that already had full order books, in some cases up to six months are producing steadily, seeing their order books reduce somewhat, but not alarmingly, and their biggest headache is getting the greasy wool from Australia to China.

One mill reported 300 tonnes (2500 bales) of greasy wool which was scheduled to ship in late March from Australia will now finally be shipped at the end of next week.

New export orders from China are now slowing for finished product as this season's garment ranges are now being packaged up and shipped to arrive (hopefully) by the end of July, for distribution and sale in Autumn.

New orders for raw materials, wooltop and yarn continue to be confirmed, with some orders pushing well out into next season. This indicates either a high degree of confidence that European consumers will be active in the months ahead - or perhaps just purely optimistic wooltop processors needing to have something in their order book to purchase greasy wool against.

Some Chinese operations continued to purchase wool in South Africa this week despite the FMD shipping ban being in place. The Cape market has continued to operate, but has drifted to be considerably below the Australian market level now as the channel to their major market remains closed.

At some point the doors will reopen, but to date there is no definitive timeline, so Chinese buyers and Cape exporters simply buy at a low level and cross their fingers. So, the perspective on the current market very much depends on where you sit, which currency you operate in, and where your customers are based.

Australian woolgrowers are obviously basking in the good conditions delivered by favourable currency exchange rates. Those growing superfine merino are very pleased, those producing medium merino are comfortable, while the crossbred producer is just thankful that the returns from shearing 28-micron still just cover the cost of shearing.

Buyers in China for domestic production overall are perplexed given their dominating share of the market, but with the pipeline moving so slowly, they dare not stop buying, even if their orders are slowing. Those exporting from China are keen to continue operating while they still have a market to service, and want to keep the wheels turning.

Buyers and processors operating in other parts of Asia or Europe are continuing and enjoying slightly less competition from the normally dominant Chinese sector, so making hay whilst the sun shines.

How the macro economic conditions around the world evolve over the next few months will be interesting, and critical to the wool market. There is no doubt the recent decline of the AUD vs the USD is driven by a 'risk off' sentiment, with global traders buying the safe haven US Dollar, and selling currencies and commodities which they fear will be adversely affected by not only an economic slowdown in China, but also a slowing Euro zone.

Chinese export growth slowed to its weakest level in almost two years (down 3.9 per cent in April), while imports barely changed. The zero-COVID policy has significantly impacted factory production and supressed domestic demand.

Chinese data released during the week highlighted just how bad the situation in China has become, with business confidence only 47.4, manufacturing PMI 46 and non-manufacturing PMI 41.9. All measures below the reading of 50 which signals expansion intent. Retail sales also worryingly declined 1.93pc for the month, but hardly surprising when even online shopping is restricted in many cities due to a lack of delivery drivers being allowed to operate.

Some in China are hopeful of a reopening in the next two weeks, and as was the case in many Western economies, a post lockdown bounce in consumer activity may just right the economic ship again.

In the meantime, the American economy powers along, with the Fed Reserve desperately hoping it can contain the inflation dragon, and the laisser-faire Europeans are talking about doing a bit more in that respect.

Spare a thought for the North Korean health officials, where the first COVID outbreak has just been announced, and the ruling party blamed the outbreak on the "carelessness, laxity, irresponsibility and incompetence" of those responsible for keeping the virus out of the country.