Chinese support sparks lift

A WEEK is a long time in the wool industry it seems.

An unexpected stimulus burst from the Chinese government has created a much better mood in the wool world.

Whether it lasts, or fulfils larger expectations remains to be seen, but for the moment things are looking much better than they were a mere 10 days ago.

Last week, despite a stronger Australian dollar, the market was solid across the board.

Knitwear types were again sought after, but also Merino fleece of all microns, and seemingly regardless of specification.

From superfine locks to downs wool, buyers were keen to own something and the Eastern Market indicator rose 17 c/kg.

Exporters were covering sales made the previous week during their travels to China, but also plenty of new orders appeared with indent buyers jumping on the bandwagon. 

Sales of wooltop and yarn had been fairly sluggish in the Chinese domestic market, and very sporadic in other markets as everyone waited for feedback from a conference in China.

Not a lot of inspiration came, nor much positive news, but external factors came into play and sales ratcheted up a notch or two.

The key driver was the previously announced Chinese Government stimulus and its intended effect on the Chinese stock market.

Most, if not all working citizens in China have exposure to the share market, and they have been lamenting its poor performance in 2024, so a sudden revival in stock valuations was most welcome.

Of course, how sustainable the rally can be is a question, with the government essentially providing credit for many listed companies to purchase their own shares, but as a confidence booster it has done the job and boosted share indices by up to 30 per cent.

The fundamentals have not necessarily changed but people are more hopeful.

Before the stimulus announcement, those in the wool trade in China were predicting a further drop in the wool market but this has quickly turned around with such a firm market in Australia and South Africa, both of which continue to face restricted supply.

The market now has to decide whether to go further and develop into a rally, or to consolidate at this level for a bit.

Prudence would dictate that the market should steady and wait for the fundamentals to catch up, some real demand to flow from an improved retail environment before embarking on a further rise, but the wool market has been constrained for so long that it is just itching to have a run.

The volumes rostered are still small with only around 32,000 bales in Australia and less than 7000 bales in South Africa.

One sure way to snuff out any chance of further price rises is to swamp auctions with grower-held stocks. 

Hopefully, patience will overcome greed, and we can maintain the steady supply of greasy wool, but it is a free market and individual circumstances will dictate grower decisions. 

Currently 1.4 billion Chinese people are currently celebrating Golden Week.

The anniversary of the People’s Republic is a time to get together with family and friends, commune with nature, or go shopping.

At least that is what everyone in the textile industry is hoping for.

This weeklong celebration typically marks the start of the retail season for the autumn/ winter collections, so the timing of the stimulus package is obviously geared towards boosting consumption. 

However, we still need a fair bit of support from markets outside China.

Those in Europe are starting to see the inflation dragon take its last breaths, but their economy remains on life support.

The clock is ticking for the current wool-selling season. 

Certainly, European based processors are yet to see a turnaround in sentiment as we have started to see in China.

The fun and frivolity could be short lived, or a few more players could get off the fence and decide they want to buy a bit of stock just in case.

Supply signals could swamp the market if too many bales are thrown into forthcoming weeks.