Wool report - Are the positive prices too much of a good thing?

The Australian wool market kicked up another gear this week with a very strong market right across the board.

Superfine merino fleece types were the leader with increases of up to 70 cents for the 17-micron MPG and much more for European spec wools.  

Medium merino indicators rose by up to 50 cents as did the skirtings.

Crossbreds continued their strong rally and gained another 10-20 cents which brings their 12-month increase to nearly 60% now.

The AWEX EMI basket indicator rose by 28 cents in local currency terms, 30 cents US, and 21 Euro cents, and nearly 2 RMB per kilo for the Chinese buyers. 

Given the low demand being cited by downstream retailers around the globe many are questioning if the market has risen too far too quickly in recent weeks.

Time will tell, but supply is not going to increase in a hurry and greasy wool is being turned into wooltop, and tops into yarn and then garments in preparation for the upcoming retail season, so unless it is a complete flop it is likely that the market will continue to move higher.

People in the greasy trade are understandably becoming nervous about the current market with some choosing not to provide a firm offer if they do not have at least some cover as this market is somewhat unusual.

August and September are normally a time when the market drifts, allowing processors to tidy up their position, pick up a few more lots with better specs and build some stock for the new season.

Instead this year, more or less since the start of the new season back in July we have seen the market moving higher each week and apart from the odd currency fluctuation there has been no chance for buyers to step in and correct their order book.

Nevertheless most in the export and processing side of the trade welcome the strength and confidence in the market at present as it helps to justify their business activity and provides a glimmer of hope that we will emerge from the five-year slump we have endured since Covid.

The cheers from the growing fraternity are getting louder, although still quite muted with nervousness, but after a such a protracted flat market some higher prices are certainly worth feeling good about.

Low lambing percentages and the number of sheep already sent to slaughter will make rebuilding the national flock difficult and will in turn keep upward pressure on prices.

Of course a supply driven market has limited potential to maintain an upward trajectory forever, but in the short term it should be able to do so.

Demand potential is building, but the turmoil across many regions of the globe is preventing any purchasing manager from actually flicking the switch and making the call.

Stock is such a dirty word in a retail sense, and after the experiences of Covid they are reluctant to open their mouth too soon, instead trying to pressure their suppliers into having product ready to go at a moment’s notice.

Some of the European spinners are beginning to poke their heads above the parapet and make enquiries about availability and a major entity in Eastern Europe has purchased their annual requirements as usual for this time of year provoking a flurry of offers from combers desperate for plant fodder.

Others have increased their purchasing of tops from Chinese processors which has added to the increase in confidence somewhat.

Others are still waiting and watching, but with a greater degree of optimism than we saw a month ago.

The uncertainty caused by American tariffs since April has subsided to a degree with many trade agreements now in place, albeit with ongoing revisions and upsets such as the ICE raid on a Hyundai factory in Atlanta which illustrates that the future will not be smooth sailing under the current administration.

Likewise the few remaining American textile manufacturers face tariffs of up to 25% on their imported raw materials even though the locally grown wool is not really appropriate to use in manufacturing their products. 

Being a President or Prime Minister seems to be a very temporary vocation in a growing number of countries around the world this week as civilians voice their displeasure at the way their countries are being managed.

But, despite the spot fires in a number of countries, and the larger fires still burning in the Middle East and Ukraine the world economy continues to move towards normality with the European Central Bank President describing the ECB as being “in a good place” and the process of disinflation as over.

China too has possibly turned the corner if one wants to be optimistic, not that too many Chinese people are at present having endured what many feel is an unreasonably tough period compared to the previous couple of decades.

They have watched their house prices decline which many didn’t realise was possible and the government has been reluctant or unable to step in an manage the situation as they have previously done.

But now the Chinese stock market is moving strongly giving them an opportunity to gamble or trade and potentially make some profits.

Official data shows still declining CPI numbers but at a slower rate than before, so everyone in the wool industry is awaiting the October retail season commencement with bated breath.

Although the currency is starting to move against us now with the AUD hitting a year-to-date high against the USD late this week the wool market should remain at least firm if not a touch dearer again next week and the light at the end of the tunnel is getting brighter.