Correction we had to have is no surprise

THE Australian wool market surprised quite a few pundits last week by easing half a dollar – although there had been a bit of a feeling that it was getting ‘toppy’.  

So, people got together in China prior to the IWTO conference and in Italy following Pitti Uomo and prior to Pitti Filati and exchanged viewpoints and the collective decided that wool prices had got a little too far ahead of the real demand situation and thus we saw a slight correction.

Similar to Mr Keating’s “recession we had to have” back in 1990, this is perhaps the ‘correction we had to have’. Not to make a major adjustment but simply to deflate the tyres somewhat as everyone know that driving on difficult terrain on overinflated Goodyears is going to cause an issue sooner or later.

It is worth remembering that after going up by 70 per cent this season the Australian wool market only eased by 2.4 per cent last week in local currency terms.

While the global oil price has fallen by as much as 7 per cent, and the Korean stock market has fallen by 10 per cent in a week and Space X shares are down around 30 per cent, the wool market is still relatively stable comparatively.  

Nevertheless, quite a few people were surprised to see the wobbly tone in the auction room and in the early market reports on Tuesday. However, the market did recover and stabilise on Wednesday.  

As has been mentioned at length this season, the trade is struggling to absorb or deal with catalogues full of high VM, low tensile strength, low yielding wools, all of which are outside the generic Chinese types.  

The major top makers from China with much more flexibility in their processing blends were able to take advantage of the Sydney selection in particular and again dominated the buying lists.

After the relatively small offering last week, the overall market indicator had eased by 46 cents in local currency terms, 63 US cents, 28 Euro cents and 3.5 RMB per kilo, which was a 2.4 to 4.5 per cent decrease depending on the individual currency movements.  

Better wools meeting the traditional European spec were actually quoted unchanged for the week, but the ‘bread and butter’ merino fleece wools were up to a dollar easier.  

The skirting market followed suit, and the carding wools were slightly cheaper, but the fine crossbred wools continued to plough onwards gaining another 50 cents in some cases.  

The increase in this bracket has been extraordinary in recent weeks as the combing mills struggle to find enough broad merino wools and are, therefore, obliged to substitute part of the blend with these Corriedale or fine crossbred wools.  

They are still very low in price compared to merino wools, but the gap is certainly narrowing.  

Across the ditch in New Zealand the crossbred and carpet wool market was not at all perturbed by the wobble in the Australian market and the coarse crossbred indicator rose by another 43 NZ cents.

Demand is still flooding in from all corners of the globe and only having enough volume for fortnightly sales is keeping the pressure on prices.

As mentioned, the annual IWTO Congress was held in Dalang, China last week.  Unfortunately, it clashed with Pitti Filati in Florence and so many Europeans chose to stay closer to home and enjoy the warm weather in Italy.  

Australian visitors spent the time pre-conference visiting customers and discussing the longer-term outlook.  Most agreed that having the market ease a little so that the price-gap between greasy wool and wool top was a little more favourable to the processing trade.  

Another benefit of having lower prices for the traders and stockholders in China is to reduce the funding requirements, which in some cases are becoming quite stretched.  

Other larger combing mills and spinners are simply looking forward to the auction recess and seeing this price drop as an opportunity to increase buying volumes to cover the recess.

Pitti Filati had a very positive tone, despite the oppressive heatwave going across Europe at present.  This was the Autumn/Winter collection of yarn, not the Spring/Summer affair as erroneously stated last week.  

Prices have certainly increased by at least 30 per cent since last year but that has not drawn gasps of incredulity or denial from weavers or knitters, just a more careful approach and in some cases requests for coarser micron yarns in order to alleviate some of the price pressure while still keeping the same look.  

It now becomes a bit of a waiting game as the spinners nervously anticipate orders for next year.  

The traditional retail season for woollen garments, sweaters, coats and the like begins usually in September/October.  

Those garments are already produced in the main, with just a few top-up orders being considered by buyers perhaps.  

Pitti Filati was considering yarns, styles and designs for 2027/27 season so there is still a long time to ponder these yarns.

The current season’s aspirations are perhaps under more of a cloud given the geopolitical situation, consumer’s inflation expectations and, of course, the current heat in Europe.  

The auction recess is looming; supply will not suddenly return to normal in September and there has been quite good, genuine demand in knitwear and athleisure wear in China and other Asian markets.  

So, we could see some further downside, but prices will soon find a level and stabilise if not rebound.