Wool Report - Supply squeeze keeps lid on

ONCE again, the Australian wool market ground higher last week as buyers struggled to find enough quantity to complete orders.

Demand is still slow, but for exporters and early-stage processors it is easy enough to sell some quantities, but the bigger challenge it to actually buy the stuff to fill those orders.

With a slightly weaker local currency the market rose by 14 Aussie cents with virtually every micron category showing green on the AWEX market report.

In USD terms the market was a more sedate five cents higher, and in Euro terms four cents lower overall, however the traditional European spec wools were definitely trending dearer as they have been all year.

Of particular interest were the relatively larger gains in the fine wool sector, and although the price differential between medium and fine wool has not yet returned to anywhere near where they should be in the longer term, nevertheless it is a move in the right direction.

Merino prices have now aligned across the nation, with both Sydney and Melbourne matching up with the exceedingly supply-challenged WA selection’s price range.

Whoever you speak to in the industry at present is in agreement that downside is limited or even impossible under the current circumstances.

This cannot last forever but, at least until the recess in late July, the only direction for the market is at worst stable and more likely to be gradually increasing.

The supply squeeze will only increase in importance in the lead up to the recess and so, if nothing changes, we can expect to add a few cents to prices each time there is an auction as we saw this week.

Of course, the wool industry seldom keeps a steady, uneventful course for long, so there are certain to be some surprises along the way to remind us that growing, exporting and processing this fibre is not for the faint hearted.

Larger mills with deep pockets are able to continue their activities and are seeing a wider selection of clients dipping their toes into the water.

The smaller mills in China are still tending to wait on the sidelines and play cards or mahjong rather than risk their funds on the speculative spot market.

While the Trump tariff situation has been given a reprieve any supply chains which involve China and America are still virtually closed due to the uncertainty.

In simple terms to spin the yarn, weave the fabric and make a garment in China destined for the American consumer who could then possibly be asked to pay 100 per cent more for it if negotiations do not go well is too large a risk to take.

Diverting the production to another garment maker such as Vietnam or Bangladesh takes years of collaboration not weeks, so many top-end European fabric mills feel they have no option but to sit and wait. 

Moving away from the epicentre of the global tariff stoush allows a much more positive picture to emerge as a travelling group of Australian Woolgrowers are finding out this week.

In Japan, although the economy is not booming, neither is it all doom and gloom.

Visiting two very different fabric mills this week as well as chatting with the Woolmark Company team from Tokyo outlined the positivity of the merino wool industry in Japan.

Nikke’s factory is in the heart of the Bishu textile production region of central Japan where more than 80 per cent of Japanese wool textile companies are located.

The area rivals Biella in Italy and Huddersfield in England for domestic textile importance and many mills are still thriving.

As the Japanese population ages and the workplace evolves, more merino fibre is appearing in other garments from base layers to shoes to casual wear and a lot of woven shirts which are really proving their worth in the warmer months.

Some new large retailers have jumped on board with the Woolmark Licensee program as they recognise the benefits of adding further certification in the form of the Woolmark logo to their garments.

Another bespoke weaving company which the travelling band of Aussie growers were lucky enough to visit last week was Kuzuri Keori who are producing noble fibre cloth in an artisan way.

The weaving machines may be more than 50 years old and based on the German Schoenherr design but create the feeling of hand-woven fabric.

Similar to some of the remaining high-end English mills, there appears to be a very viable niche for mills of this calibre to survive, if not thrive in the market place, especially if they exhibit the seal of royal assent by providing cloth to the Emperor as Keori has done.

The annual IWTO conference in France last week provided a chance for wool industry aficionados to discuss the current state of affairs.

The previous week also saw the Wool Salon meeting in Zhangjiagang China which is also now a regular occurrence.

At both gatherings presenters tried to keep the mood positive and upbeat.

At the Chinese gathering there was a determination that a ‘springtime’ is approaching for the wool market as the cycle turns and supply continues to contract around the globe.

But in the immediate future there is still plenty of uncertainty about what will happen after the 90-day SinoUSA tariff reprieve ends, but there are always a few clouds on the horizon and thankfully some growers are getting a bit of the wet stuff now.