Price is right thanks to a dip in the dollar

THE wool market in Australia eased slightly in USD, Chinese yuan and Euro terms last week but with a lower Australian Dollar prices received by growers were actually slightly higher than the previous week.  

As is often the case, international buyers adjusted their price levels to take advantage of the currency movements just because they can, and the processing wind down contributed to the slightly less enthusiastic tone of buyers in the auction room. 

Wednesday saw the price settle down to the new level, but by Thursday everything had been adjusted and the market was very firm again.  

Mid-level processors in China are beginning to close their books for the season but the large mills still have orders to fulfil and a desire or need to keep operating so they certainly made their presence felt in the auction room this week.  

The two largest combing mills in China purchased a combined 20 per cent of the offering, up from their usual 15 per cent, highlighting their dominance in the trade.

The AWEX EMI rose by 15 cents in local currency terms as the USD strengthened and the Aussie fell by more than a cent against the Greenback.  

In USD terms the market was 22 cents easier, buyers in Euro were somewhere in between as their currency eased to a lesser degree and they saw prices for Australian wool ease by 11 cents across the week, although the adjustment was only on the first day of selling and the market was unchanged on Thursday albeit with a firmer tone evident which pointed to a steady outcome this week. 

In Chinese Yuan or RMB the market also eased by around 1.5 per cent. Similarly in what was the final sale for the season in South Africa the overall market eased by 1.5 per cent in USD terms but was slightly stronger in local currency terms.  

Buyers in the Cape will now finalise their shipping consignments hoping not to have too many left over bales and then pack up their baremes and head to the beach until auctions resume over there again on August 19.

Business talk around the traps remains positive in general with the lack of supply being the major topic of conversation, although it is worth remembering that this week’s small offering of 21,700 bales in Australia is actually slightly higher than 20,700 bales sold in Week 51 last year.  

Nevertheless, with no sale in Cape, very meagre supplies left in South America and less than 25,000 bales per week being sold in Australia for the next month traders and processors are being very careful not to sell large quantities.  

This tightness in the market ensures that the small volumes of business are getting spread around the export trade as no one company is prepared to ‘go big’, and so everyone seems able to get a little bit of regular business to keep them occupied.

Shorter knitting types continue to be the most prevalent wooltop and yarn sold and blends with other noble fibres are very common, as are blends with synthetic fibres for those more price sensitive retailers.  

Some processors are still scratching around for alternative wool blends and this continues to drive the finer crossbred segment of the market.  

22.5-micron is still a popular wooltop for spinners to buy in either short or full length format, but the percentage of merino wool is decreasing each year as the Australian clip continues to move finer.

The Chinese domestic clip is now being sold although not much of the wool has actually reached the processing zone as shearing has only just begun.  

Returns for Chinese farmers are certainly looking better with the best clips that are similar in quality to an off-style Australian wool almost back to 2019 price levels.

Despite the Australian genetics the wools produced by Chinese wool growers face difficulties with the extreme climate and also the sheep husbandry and wool preparation techniques which force buyers to maintain a hefty discount to the Australian prices.  Merino wool production across China is still shrinking as a result of the previous few years of poor returns so only around the equivalent of 15,000 bales are expected to be produced this year down from 21,000 bales last year.

While other markets for wool ebb and flow and keep the market ticking along , the  Chinese domestic market has been very good but is now entering the summer hiatus leaving processors to take a punt on an economic recovery in the Chinese economy.  

They seem willing to take this gamble as the past six to nine months have been very kind to them with consistently rising prices meaning that most have been able to bank good profits along the way.  

The overall picture in the short term remains relatively unchanged, however,  with supply seemingly fixed at this lower level and demand, although seasonally adjusting, maintaining at the somewhat better level thanks to a large degree to the athleisure wear phenomena across China.  

The test will come in July as wools held for sale in the new financial year and fresh wools also enter the market.  

If volumes exceed 30,000 bales per week it may be difficult for the trade to consume, but the lack of greasy stock in China will mitigate the increase of fresh wool to a degree and therefore downside will be limited for the remainder of the season.  The remainder of the new season is a whole new ball game entirely.