Wool Report: markets open with a bounce

LAST week saw the greasy wool auctions resume across Australia with very positive results in all three selling centres. 

New Zealand and South Africa had held sales the previous week, but the Aussie Wool Buyers only hung up the camping gear and surf boards last week to return to their valuing, bidding and allocating duties.

It was quite a dramatic start to the year in terms of price thanks almost entirely to the weaker Australian Dollar. 

Late last year, which seems like a long time ago, the US Dollar rose significantly against most other global currencies in anticipation of what the new administration in America might do when they took over the reins in Washington. 

The Aussie Dollar, as a proxy for China and also commodities, was heavily sold off, and at one stage hit a five-year low. 

Great for exporters, not so good for those importing goods priced in USD or seeking to travel somewhere overseas. 

So the outcome in terms of price almost immediately on Tuesday morning when the auction resumed was a jump of 30 cents to match the cur rency movement. 

The market meandered around a bit over the two selling days, not stepping back at all, but very hesitant to go any higher either given that nobody was seeing any real change in the fundamental level of demand. 

By the end of the week the AWEX EMI had risen 36 cents in local currency terms, only registered a 7 US cent increase, but was 22 Euro cents higher and nearly a full Chinese Yuan higher per kilo. 

Individual wool types rose more in foreign currency terms than the market as a whole when crossbreds and other cheap bulk types were factored in. 

Some of the best specification merino lots increased by up to 100 cents as buyers continued to reward the best producers in terms of quality. 

During the three-week recess those exporters who had remained on duty did manage to sell a reasonable volume of wool from their stocks as indent buyers in China were forced to turn to firm offer traders with the lack of auctions. 

They have continued to inquire since the auctions closed, but getting much business done at the new higher price level is challenging according to most reports.

The larger volume of wool in Sydney next week does raise a question mark and encourage buyers to be a little more circumspect as well. 

The larger processing mills in China are still active but keeping a very square position to reduce risk ahead of their annual shutdown for the Lunar New Year. 

Mills will begin to close from this weekend across China, although some of the smaller mills who have not been having a good time of it have already sent their workers off on holiday. 

The major mills will all be closed by the end of next week as convention is that Chinese workers should have enough time off to actually be home in time for New Year’s Eve festivities with families. 

Another interesting fac tor observed in the market this week was the continued increase in premium for certified wool. 

Both here in Australia, but even more so in South Africa where those wools with good processing specifications and the correct certification paper work saw premiums above equivalent non-certified wools of up to 9 per cent. 

In the Australian market the premium remains closer to 5 per cent but did increase ever so slightly. 

This sort of premium is obviously good for those woolgrowers who have taken the time and expense to jump the hurdles to become certified, but also indicates a positivity across the industry that people are pre pared to pay extra for some thing, despite the average final customer probably still being ignorant about what it really means at a production level. 

It would be nice to outline all the positive changes which have occurred on the demand front as we clicked over to the new year, and perhaps next month we will be able to identify a few, but this early in January there is simply no fundamental change. 

It is almost as if the textile world has been in suspended animation for the past three weeks. 

The timing of Trump’s inauguration works perfectly for Beijing this year in that they can release some stimulus measures as workers begin to travel to their hometowns with China knowing what measures America is planning to instigate. 

So, we’re seeing larger volumes in Sydney or Goulburn, quite probably a very volatile currency market, potentially good and bad press releases firing around the airwaves, and Chinese buyers thinking more about holidays than wool processing in coming days.

 Plus or minus 100 cents are both possible by the end of next week, but the most likely outcome will be an unchanged market.