Shortage of supply keeps prices up

THE wool market in Australia was pretty much a rubber stamp of the previous week, with an overall decrease of 2c in local currency terms, 6c in USD, and 9 Euro cents. 

A shortage of supply is helping to keep prices firm with no real prospect of a drop until after the annual Christmas recess, by which time hopefully demand will be on the mend, although there remain some question marks about that too. 

Last week saw the trade get a bit more savage with processing discounts particularly for the superfine merino wools. 

Medium merino wools continue to attract buyer attention and there is simply not enough of them about to satisfy the meagre processing orders so the price keeps edging upwards.

Crossbred wools were fairly solid with the exception of the 26 micron indicator which always bounces about. 

Carding wools had a much better tone than in recent weeks and generally finished higher.

Wools being purchased this week will arrive in China or India or Europe well into the New Year. 

For Chinese mills that means that they will be on holidays for the Chinese New Year period and require these wools for their restart. 

Some smaller mills are already discussing a longer clo sure and will wait to see what the economic situation is like before committing to a reopen ing date. 

Any traders who want to have some wool on hand to deliver to customers when they do reopen in Early February must buy it this week, so there will be a good spread of com petition, but everyone will have fixed quantities to purchase. 

There has been the usual back-and-forth dialogue between the buying/exporting fraternity and wool brokers over the past couple of weeks. 

Always at this time of year exporting buyers ask for deferred prompt or payment dates and a longer free-storage period given that most dumps and transport facilities are closed or working on reduced capacity over Christmas.

Most brokers agree to this reasonable request on behalf of their grower clients and adjust dates accordingly. 

When the market is struggling to maintain its current level and not trip up it would seem like a total folly to put another hurdle in front of the trade. Unfortunately, growers selling in those catalogues where extensions have been refused may feel the buyer’s wrath with lower returns in the auction room this week. 

Perhaps the most positive development of the week, month, year came from the Chinese Politburo announcement. 

As Paul Edwards from HSBC succinctly reported, the politburo announced they would strengthen unconventional counter-cyclical adjustments in order to support demand in China. 

To do this it will adopt a “moderately loose” monetary policy – the first time this terminology has been used since 2010. 

They will also take a “more proactive” fiscal policy – again using more upbeat terminology. 

The nuts and bolts behind this dramatic update are still under wraps and will no doubt remain that way until after the US Presidential Inauguration on January 20. 

So, a huge turnaround from previous insipid stimulus efforts, but we will have to wait until the end of January for it to be implemented, but then maybe we will see some demand again.