Steady week for wool sales

AS  more and more low yielding, higher vm wool lots appear in the catalogues, buyers are forced to scratch around the edges to try and fill orders, paying up for the best types, but discounting the lower spec types because they can only buy a certain number of them in any single order. Chinese mills have become more adventurous in recent months with the micron spread in their types, and even tensile strength given the surge in knitting, with many now offering a ‘blend type’ or high CVD type to their clients, but they are generally unable to process low yields or high vm on their machinery, especially in a commission processing environment. Those who own their scouring and combing machines have a little more latitude.

Overall the market indicator eased by 10 cents in both Aussie and US currency, 7 Euro cents and just under one yuan per kilo for the Chinese buyers. In South Africa prices held up slightly better, particularly for the certified wools with early stage processors desperate to grab any on offer before the Cape season winds down. In South America private treaty sales were almost at a standstill with those growers still holding some wool appearing to want to wait for another miracle jump or just having other reasons to hold onto their wools for now. Some sales have been made for next season already in Argentina as Chinese topmakers lock in some supply against their forward sales for September or October shipment. Australia’s forward market on Riemann was unusually quiet with no contracts booked during the week. Bidders are being reticent to follow the spot market into the new season and sellers are perhaps becoming a little too optimistic in their price expectations for the JASON period. July through to November is traditionally a tougher period to sell greasy wool from Australia as the processing season has shut down and it coincides with winter and spring shearing in Australia so supply increases, although there is hardly going to be a glut of wool this year.

A group of Elders wool growers have been travelling around China this week and gained some insights into both the garment industry and also their customers perception of the current market. All mills which the group visited were busy processing Australian greasy wool into knitted garments for active/leisure wear or worsted fabric for suits and jackets. The high end brands were most comfortable at the current price level and actually said they would not be too troubled if prices remained at the current level for the long term – providing there was less volatility than we have seen in the past few months. Similarly the back-to-back traders buying greasy wool and rolling it over or making some wooltops and selling them around the place have enjoyed the past 6 months. The market has been rising consistently, so providing they did not get caught in one of the corrections life for the traders has been pretty good.

Even some of the worsted fabric manufacturers are telling the group that their orders are slightly better than the same time last year, which admittedly was not a great year. They do comment that at this price level they are forced to reduce their margin somewhat in order tomove the fabric, but they are definitely not becoming despondent about life in the merino textile business. Even the crossbred wool industry is rolling along quite happily with the finer edge being used in blends with merino and the carpet industry looking very positive in many markets across the globe. But the big story in China is knitwear and the Elders grower tour visited two manufacturers just outside of Shanghai where business is booming.

Chinese citizens, particular those in the top 10 cities, with good jobs, more disposable income and increasing leisure time are driving sales of next to skin knitwear for sports and leisure. Their relatively high disposable income allows them to afford the purchase price; they are becoming more educated about the benefits of merino and relish the easy care nature of the garments. The finest fabrics are so lightweight that the amount of wool in each garment is not a lot, so the price has not been pushed out of reach, but the sheer number of consumers in this space means that consumption across China has been huge. Nearly all of the wool shipped from Australia to China over the past 6 months has been transformed into garments already and there is virtually no stock lying around.

The processing season is however going to wind down in the next month or so. Already the increasing temperature is beginning to affect sales of traditional merino garments such as sweaters in the Tongxiang marketplace. Mills along the chain have overcome their chronic shortages and are now comfortable with stocks versus orders. They will be reluctant to dip their toe into the water again and risk holding stock ‘when the music stops’ and so there is a degree of caution entering the psyche in the China trade at present. Given the quality of the selection in Australia this week and the tapering off of supply in South America and South Africa it will be difficult to imagine the wool market going down at all. However the is simply not enough processing capacity able to successfully transform all the low yielding medium merino wool at present so this will apply a brake to the market indicators and this week’s report will most likely be a ‘rinse and repeat’ of the previous two weeks.