Market settles to drift sideways

THE wool market managed to get through last week relatively unscathed as buyers sat back and tried to pass on the new price level to their clients.

After the opening day saw one or two Chinese processors bid aggressively, their enthusiasm waned and the market drifted sideways, but with a slightly negative tone.

Many had predicted a steeper downward move, so losing 1c/kg in local currency terms and US4c/kg was considered a win.

The battle to pass on the higher prices established over the past month continues, as does the push to stimulate demand. 

In a typical sluggish market the better-tested wools were unchanged to slightly dearer but lots with weaker specifications copped more of a discount.

Merino fleece types eased a little although most early-stage processors offered unchanged prices from the previous week. 

Knitwear types, where demand has been the best all season were steady but processors lowered their prices somewhat in the hope of attracting business.

Crossbred wools were 5c/kg dearer as mills continue to look for defensive, low-risk options. 

The carding market continues to bumble along at the bottom but will hopefully build as the main season approaches. 

The gloss has worn off the Chinese stimulus announced a couple of weeks ago. 

Everyone was hoping for a follow-up dose, but nothing has been forthcoming..

Chinese economic data released this week has been keenly watched as the figures could allow the Government to sit on the sidelines, but equally could force it to do more.

Confidence is a fragile beast and while the market would like to see a lot more soothing action there is no certainty that Beijing has the will or the ability to flick the switch to magically make things better.

Chinese domestic sales of woollen garments have been OK, all things considered, but a lot of the items sold to date are old season’s stock, so really just clearing the warehouses and not yet adding new production orders to the supply chain. 

In other markets, Korea appears to be going quite well, in Japan currency fluctuations are causing headaches for those trying to align the cost of yarn or fabric with the spending power of consumers and India is not setting any new buying records but has been relatively consistent in the market.

The European Central Bank has cut interest rates again amid gloomy data showing industrial production and retail activity falling further. 

Conversely, the United States continues to surprise on the upside, with interest rates now on hold. 

Looking back to the same week last year the Eastern Market Indicator was 1c/kg higher than now, but in US currency it is up 36c/kg. 

A year ago a general lack of demand was concerning, Chinese domestic consumption was stagnant, and the European economy was struggling. Not much has changed, except supply is down by between 10 and 20 per cent, which highlights demand as the key factor. 

Low supply will prevent price falls but we really need demand to grow to see prices break out of the current trading range.