Wool prices ease as market ponders

ANOTHER week of a slow grind for the Australian wool market saw prices ease slightly again this week. 

The strength of the local currency, or more to the point the weakness of the US Dollar, saw prices in Australian-dollar terms again down more than those in USD prices, with a drop in AWEX EMI of 26 cents. 

In USD terms, the decrease was only 12 cents, which more accurately portrays the real scenario. The market is searching for direction, with many buyers still sitting on the fence as the market drifts lower, supported to some degree by the smaller quantities on offer. 

To only have an offering of just under 40,000 bales two weeks after a three-week recess highlights the lower production this season compared to previous years. 

The industry forecasting committee’s prediction of a 10 per cent decrease may yet be on the low side, which could create some fireworks when demand conditions improve later in the season. The price movements this week were relatively uniform, with nearly all Merino sectors easing by 30 cents, but the standout area was the European spec superfine wools, which found very good support on renewed Italian interest. 

While the proper spec wools are currently few and far between, given the season is only just starting and the challenging growing conditions experienced, positive signs are emerging that Italian buyers will flex their muscles in coming weeks to ensure they get enough of these wools for the upcoming season. 

Mills in Italy are said to be quietly confident of a recovery in coming months despite the poor conditions they have endured over the past two years. Knitwear types, pieces, bellies and prems, continue to outperform relative to the fleece wools, but the same cannot be said for the beleaguered carding sector which remains very stagnant. 

Crossbred wools struggled to find much love but are not falling out of bed either as mills look for defensive stocks to weather the storm. 

DEMAND from Europe in general remains on life support, with the exception of forward-thinking Italian mills, which are beginning to ramp up activity as the greasy wool season for their raw material reopens. 

Other spinners, weavers and knitters across Europe are returning from their summer holidays but are mostly still chatting in the coffee shops about the fish they caught or the wine they drank and how well their tans have developed. 

Further East the mills in Russia and other former Soviet Bloc countries continue to operate in a close to normal fashion, albeit with challenges to source raw materials and find a way to pay for goods given the tight- ening of sanctions recently. 

ACROSS Asia the wheels are turning markedly slower than they were in the first half of the year. 

Japan, Korea and Vietnam have all slowed noticeably, but this is largely a factor of the time of year as much as the economic situation. 

To expect an increase in demand in August and September is wishful thinking for the most part as the whole production pipeline sits and waits for the retail season to awaken. 

Certainly we have endured a fairly lacklustre first six months of the year, but the market always pauses in August and September waiting for news from the retail end of the chain, then restarts to produce for the next season and also to top up supplies for the current season.

SHANGHAI hosted the Intertextile Fabric exhibition this week and the mood was predictably downbeat given the current market mood. 

Next week spinners will be the focus with Spin-expo tak- ing place, again in Shanghai. 

The early stage players in the wool industry will then head to China for the Annual Nanjing Wool Market Conference which is an event which can sometimes kickstart a bit of activity as the trade all gather in one place and try to sell a bit of wool to help justify their expenses and bar tab for the week. 

By the end of September we should have seen an interest rate cut in America where consumer confidence is already on the improve in anticipation of this. 

In Europe the German inflation data appears to have bottomed out at 2% so the challenge for the European Central Bank is now to cut interest rates quickly enough to get the economy moving again before the recession takes hold. 

Similarly in other countries around the world sentiment is beginning to turn in a positive direction, with as an example business confidence in New Zealand hitting a decade high point this week – admittedly from a very low ebb. 

THE wool market outlook for the short term remains therefore a slow grind sideways, with hopefully less currency pressure. 

The trading range for both fine and medium Merino wools remain in place in USD terms, so there is little expectation of a break lower, but time is needed to create the conditions for a break to the topside as well. 

Longer term should definitely see the ducks lined up, barring an unforeseen economic catastrophe allowing for Merino and other fibres climb off the carpet and get back to the top end of their price cycles again. 

At current price levels Merino wool has very little price impediment to increasing demand, and more and more processors and manufacturers are using this fibre as the premium high value, high performance fibre it certainly is. 

The days of selling every person in China a pair of socks to reduce stocks are well and truly behind us. 

As we wait for the calendar pages to flip over hopefully a bit more rain will be forthcoming across Southern Australia.