Wool Report - Lack of supply not stifling Australian market

Once again, the Australian wool market moved forward on the back of low supply, outweighing concerns about the current lack of demand or maybe more of an optimistic feeling that demand will eventually catch up.

By the numbers everything was extremely positive with the overall market indicator rising by 30 Aussie cents, 24 US cents and 20 Euro cents.

Similar to last week, the gains were across the board in all types and microns with no one type standing out except perhaps crossbred wools on a percentage basis, but pretty much every quote was 30 cents higher.

People overseas are still adamant that the market will not go down because of the restricted quantities available, despite the lack of demand from a retail point of view.

There are quite good sales of wooltop and yarn being made as processors continue to operate machinery and prepare stock for orders which they hope will eventuate.

Massive stocks are not yet building, but those further along the pipeline, closest to the retail customer are certainly more concerned.

Those in the early stages of the pipeline are still doing their thing and making sure that they do not get caught without enough raw material and so continue buying greasy wool.

With only 30,000 bales available in Australia this week, and no sale held in South Africa where early shearing back in June and subsequent wet weather has brought greasy wool deliveries to brokers stores to a screeching halt, the major top makers and those Australian exporters with indent orders were forced to compete strongly for available wools.

Wet weather has also delayed receivals into broker stores in eastern Australia and no doubt some growers are now watching the market and wondering if they should sit and watch for a bit longer before selling.

Individual growers have different cashflow requirements and also differing appetite for risk taking which will ensure that a fair percentage of the new receivals track straight through the system but there are some who will be looking at the current market and deciding to hold.

From a technical point of view the chartists have now confirmed that the important 19-micron segment has broken through its previous resistance level of 1000 USC/kg which has been the top of its trading range for the previous two years.

Although charting is not an exact science many analysts in many different markets do use this process to try and predict where a market will head next.

The 19-micron chart in USD now suggests that the price will head to its next resistance level of 1100 cents and if it breaches that it is basically blue sky until the 2018 peak of 1800 USC.

Given the increase already achieved this season in a tepid demand situation, gaining another dollar in price is certainly not out of the question, so if demand does eventuate, and it will not happen without a significant demand shift occurring, then price levels of circa 1800 USC will certainly put merino wool back in the headlines for all the right reasons.

The Autumn/Winter edition of Intertextiles Fabric Exhibition has been held in Shanghai this week. Some exhibitors were pleased with the visitor numbers, some less enthusiastic.

There were certainly good numbers of people coming through the turnstiles, but how many were just tyre kickers or university students ticking off an assignment prerequisite we don’t actually know.

Some of the new innovations and functional fabrics draw a crowd just to see what the new talking point on social media could be, but the traditional worsted suit fabric manufacturer from both China and Europe lament the demise of sartorial, elegant dressing.

China’s economy continues to worry the whole textile trade, and just about every other manufacturing industry as well.

A few government voucher schemes have come and gone providing temporary blips in consumption for products like white goods, mobiles phones and certainly electric cars.

If President Xi was able to be persuaded that such a voucher system which gives the consumer a 15% rebate on the purchase price, was required for sustainable, natural fibre garments we could be off and running very quickly.

Unfortunately, the government purse tightening is resulting in less frequent uniform orders this year than previously and so that is having ripple effect through the worsted fabric manufacturing system in China.

A couple of week’s ago the Shanghai stock market did begin to rise strongly as the government loosened requirements for bank loans and stock market accounts.

Citizens rushed to the bourse to invest, and some wondered if this may bring about a boost for the economy as profits were generated.

A quick retraction of more than two percent this week has wiped the gloss off many investments, but now that the pomp and ceremony of they 80th Anniversary victory celebrations are done and dusted the boffins in Biejing can turn their attention back to hopefully ramping up the Golden Week retail extravaganza in the first week of October.

The global economic scene continues to be more than a little unsettled with bond traders in the London market in particular jumping through hoops when UK economy concerns raised their head, as did Japanese and the French, both over government stability worries.

USA numbers continue to be focus for many but so far that economy is providing to be remarkably resilient to turmoil and uncertainty.

Perhaps if a few other economies prove to be as resilient in the coming months we will see consumers actually return to the stores and purchase rather than just look.

The wool market meanwhile is in a very interesting position, poised to boom, but just lacking that bit of fuel to make it happen.

Next week should see another very firm tone as the modicum of business soaks up all the available supply.