Time of stabilisation for wool producers

The Australian wool market continued on its merry way last week with further rises for good quality wools, but some of the lesser style wools retracted somewhat.

Overall the AWX EMI gained 8 cents in local currency terms and 10 cents in USD.

In Euro the market was 8 cents dearer and Chinese domestic buyers saw a 0.8 yuan increase as well.

 A poorer quality offering in Sydney took its toll on the micron indicators with some of the finer merino types closing in negative territory.

 Also across in the west the lower yielding types meant that many lots were unsuitable for the generic China types and that left the large topmakers as the only buyers of note, with the exception of the 21-micron group which still managed to climb by 13 cents over there.

The 21-micron indicator is now above 1500 cents clean in the east, and trading on the forward market for around this level out towards the end of the calendar year.

It now sits above the 70% decile for the past 10 years, and well above the 90% decile for the past 5 years as supply continues to bite.

In USD terms it has confidently broken out of the range where it has been trading for the past two years but still requires a consistent lift in demand before anyone can get too excited.

In the meantime it does represent an excellent hedging opportunity for those who will be shearing in the spring.

Hedging at least a portion of this year’s clip at prices 2 & a half dollars above last years price would seem like a sensible risk management strategy given the ongoing tumult around the globe.

Crossbred wools last week were also a little mixed, but again the price comparison to last season is pretty favourable with a full dollar increase in price for 28-micron and while forward volumes may be a bit thin for this type do also represent good cover for the spring when supply will inevitably increase.

The cardings market is tracking sideways but has had a bit of a lift in recent weeks as the processing trade remains very focussed on the knitwear sector but the worsted fabric sector continues to languish comparatively.

A lack of supply of greasy wool at a time of the year when mills are obliged to begin ramping up production for the upcoming retail season has everyone a little frustrated.

Nobody is complaining that prices are too high, or that the price increase over the past month is unwarranted as everyone in the textile pipeline is very aware of the need to lift grower returns if production volumes are to be at least maintained.

However as has been mentioned time and time again we do need to see a lift in demand at some point over the next 6-12 months if we are going to get this market cycling upwards.

Processors are actively searching the globe for greasy wool and it is only the southern hemisphere that can provide the necessary raw materials at present.

Growers in Australia are obviously benefiting from the machinery appetite at present, as are those in Argentina and Uruguay along with the South African growers who have the added bonus of many more certified wools than in the Australian clip.

The premiums for RWS certified wools in the Cape market last week were approaching 7% compared to the non-certified merino wools as mills scramble to get enough of these wools to satisfy demand.

Exporters and processing mills worldwide are receiving more requests for certification from end-users although extracting a premium to cover the extra cost of these wools remains a challenge, but nevertheless for those growers who have joined the schemes and done the work to become certified the benefits are being accrued.

The major markets for wool have not improved in the course of last week leaving many in the trade questioning if they should continue to purchase wool to feed machines or perhaps sit back and watch for a bit.

The downside to sitting on the fence is that current supply volume makes it dangerous to do so, as trying to suddenly buy twice as much quantity in any given week could quickly push prices out of reach.

So all the major players are obliged to continue and hope that they can find enough sales each week of tops or yarn to keep their inventories in order.

Japan, Korea and India are thus far providing just enough competition to the Chinese domestic market to settle the nerves of the traders and processors around the world but they would dearly like some more positive news to back up their movements.

In China the local economy remains moribund with a group of Elders growers and staff seeing first-hand the effects of the real estate industry collapse.

Ghost buildings of half-finished apartment buildings are much more prolific outside of Shanghai and Beijing as local governments had all jumped on the gravy train which previously provided a steady source of income for them courtesy of selling parcels of land to developers.

Conversely a fast train journey from Xian to Chengdu highlighted just how many staff are employed by China Railways and the sheer number of uniforms was particularly evident.

Hopefully the cash will soon start flowing from Beijing to renew some of these uniforms and create some more activity in the worsted fabric segment.

Globally the economic situation continues to be somewhat unstable with on-again off-again tariff announcements from Washington creating some angst, although a surprisingly easy passage through the outgoing German parliament of the infrastructure spending bill will hopefully provide a boost for that economy.

Many Reserve Banks in both the US and Europe have their fingers poised over the interest rate button to boost consumption and economic activity but are hesitant as well due to the threat of tariffs being imposed and the inflationary aspect of them.

So, the outlook for the wool market is probably more one of stabilisation than continued price increases in the short term, but with very little downside at the same time.