Wool prices ease

A BIT of a hiccup in the wool market this week saw prices ease somewhat. Three key reasons contributed to the correction. First being the poorer quality wools in a lot of the catalogues, secondly some reported cashflow issues among the export fraternity after a couple of very large offerings in previous weeks which needed to be paid for, and thirdly just the usual market machinations.

After practically eight weeks of consecutive rises with only the odd currency related blip the market was due to take a breather. Certainly nothing has changed on the supply front, and not much increase or decrease is evident on the demand side, so the status quo should revert over the next couple of weeks barring any other major development.

Exactly how much a market will correct after a protracted rise before it continues its upwards trajectory is easy to quantify with hindsight, but ‘predictions’ suggest a further 50 cent easing may be possible for the 21 micron type unless of course the scramble for quantity reasserts its dominance and prices level out and then rise again next week. This week saw 32 cents trimmed from the AWEX EMI in Aussie dollar terms, with the USD indicator losing 27 cents.

European processors and traders saw a decline of 23 cents which was enough to effectiveshut down, temporarily we hope, the green shoots of business activity which had begun in that market. Sales in Europe had been increasing in volume, but still a long way below replacement price and only possible with older stock at pre-Christmas price levels or close to it.

Now those buyers have used this week’s market report as an excuse to get back on the fence again but pressure to keep machines running and produce garments for the upcoming season will be building. India has reportedly increased activity somewhat during the week as have other Asian countries such as Japan and to a lesser extent Korea.

There are lots of new enquiries and requests for offers, but customers are hoping for a larger discount than what is actually possible given the market movements which took place this week. Good wools, especially at the finer end of the clip did not actually drop very much and so the cost of buying a wooltop or yarn with the best specifications is not much cheaper than it was last week.

The market correction may have a little more in it, but it will be mostly the burry low yielding broader merino types which wear the brunt of the correction with the other better wools finding their level shortly. The larger topmakers seem to subscribe to this theory as they both substantially increased their buying activity on Wednesday obviously concluding that the market had done it corrective thing and now was the time to get back into purchasing mode, particularly with the one-week Easter recess looming.

With rostered quantities expected to drop off sharply after Easter buying enough greasy wool to keep all their machines running is somewhat challenging. Even if these large combers purchase 1,000 per week in South Africa, and a few containers from traders in Argentina (500 bales or so) they still need to purchase close to 2,500 bales in Australia for a normal week’s production and this does not account for the Easter Recess.

Throw in another half a dozen other largish combing mills operating in China and there may be a bit of a scramble for wool as the season draws to a close in the Southern Hemisphere. Combing mills in China, at least the larger stronger ones are still dominating the global scene. They have the financial clout to offer payment terms to their clients domestically and abroad, have a large enough pool of greasy wool to average purchase prices, and are able to process more of the out-of-spec wools which are becoming more prevalent.

Those few combers in Europe who remain are struggling against rising energy and transport costs. South American combing mills find it increasingly difficult to operate in the current environment with their traditional European customers way behind the current market price. They are unable to compete in the Chinese domestic market so many are finding it more profitable to leave machines idle and instead sell greasy wool to Chinese mills. Breaking this dominance of China in the early stage processing industry seems difficult, but the competitive tension between the various operators should keen the playing field fairly level.

Developments in the Middle East continue to create headlines and angst over fuel supplies and prices dominate conversations both here and abroad. The increasing price of oil does have a direct impact on the price of synthetic fibres and therefore the relative ratio with merino prices but wool is so far out in front that even a doubling of the price of polyester will not make wool seem cheap. With the recent surge in price of wool and its repositioning as a noble fibre the price relativities are less relevant than they once were. Some commodity end users such as the garment industry still measure the price difference between polyester or acrylic and wool, and they do consume a largish volume of wool, but so much more wool, merino in particular is aimed at the higher end markets where individual fibre price comparisons do not drive the blend composition and rightly so.

Next week will be an enlightening one to work out if this market has the underlying strength to continue and take the next leg up as expected or if the drag from the poorer style wools will infect the broader market. Early indications suggest that exporters are able to sell finer wools reasonably freely but broader merino types are less sought after.

The price gap between 17 and 21 micron may be set to revert to a more normal basis after being squeezed to an abnormally small gap due to supply issues over the past 12 months. Overall the market should drift a little initially before finding a base as the ‘stock up before the recess’ factor kicks in.