Prepare for some bumps | Earth
The Australian wool market celebrated the Lunar New Year with a bang last week.
It wasn’t necessarily with fireworks, but with great enthusiasm and strong performances by a wide range of buyers all having a crack.
This indicated strong demand, unlike some weeks where only one or two buyers dominate.
Lunar New Year celebrations across Asia would generally mean a fairly subdued trading environment for the wool market.
But, with the sale slate adjusted, meaning wool sales were canceled by one day to avoid actually selling on New Year’s Day, there were a lot of new orders in the market from of retiring operators, start-up processors and traders.
Some sectors of the trade calmed down after the initial rise to see if it was real or if they could find some cheap deals.
But they quickly changed their tune and returned at Thursday’s auction. The mood was slightly less enthusiastic at the Fremantle auction center on Thursday.
There is no doubt that exporters’ finances are stretched ‘to the max’ at present as shipping delays continue to plague the industry.
The overall result was a solid price increase of 50 cents per kilogram for most merino wools, 20c/kg for the previously maligned crossbreeds sector and 30c/kg for carding wools.
Well-tested lines sold at much higher premiums, as did superfine Merino types, which were rare.
Certified sustainable wools continued to earn premiums of 15-20% over “normal” wools.
Some of the low yielding lines, or those with too many flaws for traditional CPUs, didn’t really gain much for the week – and likely contributed to the relatively high 7pc hit rate.
The 93 pc of lots that found new owners did so with a wide range of buyers and destinations.
US dollar prices increased by 37c/kg and European buyers saw their purchase prices rise by 27 euro cents – although in reality this was much larger given their preference for the part thinnest part of the clip.
More Indian buyers were active last week, adding to the perceived fear of missing out (FOMO) from Chinese trade.
Although virtually all factories in China were closed and all trade offices closed for the Lunar New Year, Chinese traders were very active.
Despite the economic contraction threatening the national economy and the potential lockdowns that could be imposed at any time if a returning worker tested positive for COVID-19, a number of Chinese traders seemed keen to do some stocktaking.
China’s domestic market was quiet for yarns and fabrics, and consumer activity declined.
But some obviously anticipate an improvement in the months to come.
The increase in buying activity has seen a resurgence, or at least an increase, in cross pricing – both here and in New Zealand.
These wools have been so cheap for so long that processors are now looking at them from a different angle and saying they must be worth trying.
And, so, business gets done and fat prices go up – finally.
It remains to be seen whether this Chinese domestic business is the start of the typical processing cycle, and those who got there early will be rewarded, or whether it is running out of steam as the economic situation deteriorates.
But either way, we’re probably going to have some volatility.
In Cape Town, the South African wool market reminded us how volatile the wool market can be.
Two weeks ago, his market was down about 5% as a reasonably large volume of shorter yarns were on offer.
Last week there was a much higher percentage of finer, full-length yarns – even with less certified yarns included – and the market jumped 7% in US dollars.
Since many traders and exporters operate with a margin of 2-3%, these fluctuations have the potential to close or undo many deals in a short period of time.
So while superfine merino in Australia is driving the market – and taking everything else with it – and the Europeans just can’t get enough of it right now – and there are two sales of superfine names in sight – producers would be wise to expect the odd bump in the road ahead.
With a large and stylish Goulburn catalog being sold in Sydney this week, plenty of buyers will be able to fill exceptional orders of quality superfine merino.
Next week there will be a Tasmanian Feature Sale in Melbourne, in what will be a three-day sale week.
Rising prices each week in 2022 have already flushed out even more yarns and sellers eager to take advantage of very good prices.
But with this week’s list dropping from 40,000 to around 48,000, buyers’ stretched cash reserves just might not be able to consume it all.
No doubt if we see a heavy hit this week, growers will be comfortable passing the wools through and putting them back in the shed for a while.
The outlook for prices looks very good on many levels – with the odd curveball also in play.
The Superfine Merino types have clearly and decisively broken through the resistance level on the price charts they have been watching for a few weeks now.
This could theoretically see them rise by another dollar or more, were it not for the fact that there would suddenly be plenty in the next two weeks – and buyers have limited the money to play with.
Average merino – at least the plain “vanilla” types without too much blemish or color – sells quite well.
But exactly how many have come out of the closet to oversupply the market is a key question.
The crossed wools, having finally found a bit of a ticker, could also weaken at the first obstacle if the quantities increase too much.
Other fibers and commodities are doing very well and provide a healthy backdrop for the wool industry if it is to continue to progress.
Cotton is trading at decade highs, although some analysts were talking about oversupply not too long ago.
Crude oil is also trading at levels not seen since 2014.
So provided we don’t see a misstep from Reserve Bank governors, or Ukraine getting ugly, or plans for ‘COVID-19 restrictions out the window’ in Denmark and Sweden go wrong, February should be a good month for the wool industry.
But volatility is just around the corner.