Wise woolgrowers wait out dip

THE Australian wool market was once again the only centre selling wool in a formal auction last week, however, even this was not quite enough to arrest the correction which we all thought had been necessary, although it does now appear to have run its course.  

The AWEX EMI closed down by 39 cents in local currency terms with the majority of the slide occurring on the first selling day.  The second day saw prices come off a smidge more but the tone in the room was remarkably better and some business had been concluded by greasy exporters on Wednesday night so everyone was a little more confident on Thursday.  

The movement in US Dollar terms was 30 cents for the week as was the Euro movement.  A similar 2 per cent drop in Chinese RMB saw prices decline by just over 2 yuan per kilo.

A fair swag of wool was passed in this week with nearly 17 per cent failing to meet grower’s expectations with another 5 per cent being withdrawn prior to auction.

So growers are clearly prepared to wait this one out which is probably a reasonable strategy provided time and cash flow is not an issue as the cyclical production slowdown is working against the market revisiting the June highs in the short term.  

Helping to keep the market stable at least and probably a touch dearer in the next three weeks is as always, the impending annual recess.  

While not too many buyers will be boarding ships to return to the motherland and discuss proceedings with their principals as occurred in the old days, modern day combing mills will continue to operate seven days a week and so need to boost their buying activity to cover the three-week recess.

Some mill owners are questioning their next move, and wondering if they should step in hard, or wait for another week, or just pick around the edges.  

Much will depend on the number of wool top or yarn sales over the last 48 hours and how many forward orders they already have in hand. 

Nobody has ever been able to pick the exact top, or bottom, of the market so early-stage production is always about blending and averages.  

The general consensus would appear to be that this relatively mild correction, currently one quarter of the October to June price rise, is probably a good opportunity to pick up some wool in preparation for the early part of next season. 

Of course, the few best quality lots available are not any cheaper than they were last month and so those with requirements at this end of the clip will need to maintain their activity no matter what.

The first six months of this year have been particularly good for most players in the wool industry and rather than throw caution to the wind there is a feeling that these gains need to be protected in case the second half of the year is more difficult.  

Growers in all southern hemisphere countries have seen greasy wool prices rise in most cases to above the 95th percentile for the last five years, and in the case of crossbred wool prices for 26 to 30-micron the prices rise has been exceptional.  

Across the ditch New Zealand growers have seen even larger price increases, however, it may be too little, too late to actually turn production around with many growers having exited the industry in frustration over the past few years.

In Australia, Argentina, Uruagay and South Africa growers have also seen prices ‘get back to where they should be’ but how production numbers react in coming years will depend on future prices but also other seasonal and economic factors.

 Everyone in Asia is searching for signs and trying to anticipate just how many garments the major brands will commit to, how much has already been produced and if there will be any last-minute purchasing orders for them to get their teeth into over the next three  months.  

American and European brands, due to the tyranny of distance already have their goods in the warehouse or at least on a vessel so the season is wrapped and packed for them.

Asian retailers and specifically in China have done a wonderful job moving wool through the pipeline to consumers over the past 12 months but can they back up in the second innings?  

There are more and more noises being made about high prices, and price resistance is now a reality.   

The wool price for the next three weeks should be fairly stable given the annual requirement for mills to cover the recess, but the tug-of-war between supply and demand will certainly resume in late August.