Strong week for wool

IN US$ terms the wool market's gain was only slightly less at 57 cents, while in Euro the market jumped by 52 cents, and Chinese domestic buyers saw a gain of nearly 4 yuan per kilo which astounded some but pleased others. After the previous week’s strong market which was largely attributed to restocking after the Easter Recess, many had anticipated a week of reflection or consolidation.

A relatively small offering of only 33,000 bales however meant that indent orders alone were enough to push the market along at a brisk pace. The larger topmakers were present, but more measured in their activity perhaps not wishing to add further fuel to the fire but indent orders tend to be all about getting the required quantity and so can have an extraordinary effect on the market price. The feeling among many Chinese manufacturers is that although the market is getting dearer, they need to keep buying every week to maintain their stock levels and so have the ability to make average prices, and to stop buying is a sure way to fall off the merry-go-round.

South Africa resumed sales again this week and had to play catch up after taking the previous week off. Their market mirrored the Australian price movements over the past two weeks with a 97% clearance rate and slightly increased premiums for certified wools. Next week the Cape buyers will head back the beach as they do not sell again until 6th of May. In South America greasy stocks continue to dwindle. Those growers who still have some clips in the shed are biding their time and exporters have very meagre stocks to work with until the new season begins in the spring.

On the demand front the story remains all about Asia with Europe still very subdued. Japanese and Korean garment makers are proceeding cautiously although with more intent than their European counterparts who seem to prefer working short time and tapping into government assistance programs rather than speculate and produce garments which may or may not sell in the coming season. Given the battering many have taken since Covid, and then Ukraine and now the Middle East debacle those in charge of the spreadsheets appear to be calling the shots whilst the designers and salespeople wonder what the future holds. Not all European companies are suffering from this malaise however, with the top echelon of fabric makers and garment manufacturers operating seemingly in a different world and trundling along quite happily. Their customer base is much more resilient and able to withstand the cost of living pressures affecting the second and third tier consumers.

Similarly in China, the penny has finally dropped and manufacturers who are targeting the high end of the apparel pyramid are those who report the best outcomes. Last weekend saw nearly 300 industry delegates gather for the 48th Wool Salon, which is a wool industry forum organised by the Zhangjiagang (ZJG) Wool Industry Association. ZJG as a Free Trade Zone has evolved over the past 25 years to be the hub of textile production in China allowing for import, processing and manufacturing and then convenient re-export of goods to customers overseas. Many firms operate there even if a large portion of their goods end up being sold into the domestic market, but for those with an export focus it makes much more sense to operate “under bond” to save time and money in the Customs process.

Attendees at the Wool Salon ranged from raw wool suppliers, early stage processors, fabric manufacturers, brand operators, testing and certification bodies and industry associations and heard from a range of speakers talking about the current market, their own business conditions and their aspirations for the future. A clear theme which emerged was that due to greasy wool production restraints the raw material price is unlikely to return to its previous lows and that the market is now in a new paradigm. Much discussion ensued about the change in the Chinese domestic market for wool moving from predominantly suits, overcoats and sweaters historically to nowadays much more outdoor performance apparel. Mountaineering, skiing, trail running, hiking cycling and other such activities now lead consumption by Chinese consumers which obviously demand a different, finer, next to skin fibre leading the drive to finer micron wool which is evident in the Australian auction in recent months. Notwithstanding some crossbred wool users were very bullish about their sector of the market as well with new products driving even more consumption in the future.

Uniform orders consuming 19.5 to 22.5 micron greasy wool still provide a large volume of consumption, and the recent surge in synthetic fibre prices are putting a strain on fabric prices leading to further reduced wool percentages in blends, but the sheer volume of uniforms required mean that volume demand is still there. All in all the conference was extremely positive, and despite the high raw material prices most brands were optimistic about the coming season.

Back at the coal face in Australia there will be nearly 40,000 bales offered next week, but with no South African sale and most exporters reporting continuing business into China overnight the auction next week is expected to be very strong. That is providing of course that nothing dramatic occurs in the Strait of Hormoz. Global equity and currency markets remain on edge and oil prices are back above $100 USD/barrel. PMI’s around the world are struggling to maintain their levels, but not so in America where the economy seems much more resilient. It will be an interesting next few weeks with the wool market looking particularly buoyant until the end of May at this stage.

DAMIEN WHITELEY

Elders District Wool Manager