Wool Report - Quality still lacking as we wait for spark

Once again the Australian wool market moved more or less sideways with the increasing percentage of poorer quality wools overshadowing the better performance of wools with good specs.

The selection quality is what nature has dealt us to a large degree and for the most part not something the industry is able to influence, but certainly the processability of different wools is being reflected in weekly prices, as it should be.

Growing a product which your customer desires and is willing to pay more for, when conditions allow, maximises profits in any industry, but just having some production this year is a stretch for some growers also.

The AWEX EMI was virtually unchanged this week with a one cent drop in USD terms, four cents in European market reports, but buyers did show some good enthusiasm for the best fine and superfine clips.

The futures market remains well bid even if not much trading is taking place. Indications for current or better prices are basically in play for the remainder of the year and into next, and most people in the trade concur with this outlook. Supply continues to grind lower and squeeze the market tighter, but that in itself will not generate higher prices as we all know.

A spark to ignite the demand side of the equation is still needed and at some stage everyone will be able to look back with hindsight and say that was it, but predicting what it will be on a forward basis remains exceedingly difficult.

Some brighter spots are present in the greasy market however, with crossbred wools much stronger last week. 

It may be just because mills are using them as defensive fillers, where the potential loss is least, or that one of the large Chinese traders is taking a position but either way they are increasing in price.

Knitwear is still the mainstay of the retail activity both present and pending, and so the skirtings market continues to hold firm.

Some of the poorer, tender fleece in the 16-17 micron range is heading to the knitwear sector as they represent far better value for a combing factory than the equivalent micron pieces type.

Interestingly reports from Tongxiang, the hub of the Chinese knitwear production industry, highlight that 17.5 micron wools are much more prevalent than 19.5 micron this year.

Manufacturers and therefore retailers are taking advantage of the compressed micron premiums in the current market and offering customers a more premium product, probably at the same price as last year in an effort to generate activity.

Manufacturers are able to flex up and down the micron curve as price allows, and also with fabric weights and additional treatments such as Basolan to keep within their price points, but to also try and entice customers with something new.

Chinese consumers in particular are still proving reticent despite the best intentions and endeavours of the trade.

The Chinese government continues to tinker around the edges with stimulatory measures such as providing toll free roads during national holidays.

But aside from causing more traffic jams it has not yet generated the lift in consumer activity most are hoping for.

Chinese domestic tourists typically do not spend as much money as western travellers when visiting a landmark or city but the key levers to pull or programs to pro vide to actually boost consumer activity still appear to be eluding those in Beijing.

Many in China now accept that their sluggish local economy is a far bigger challenge than the American trade war.

For those 10 million or so university graduates hitting the streets later this month in China, finding employment will be a massive challenge and this will no doubt be causing some sleepless nights among the hierarchy in Beijing.

European manufacturers and retailers are likewise desperately hoping for a turn around after virtually two years of very poor conditions.

Although the EU is yet to finalise any sort of agreement with Washington they are making progress on their own economic environment it seems.

The European Central Bank cut its rates for the eighth time taking the cash rate down to a much more manageable 2 per cent as inflation is now down to 1.9 per cent.

A fragile optimism is being maintained across markets at present, with equities in the green and modest gains being made by ‘risk on’ currencies and assets.

German manufacturing orders unexpectingly grew in April, providing a lift in Europe’s largest economy.

Service PMI’s grew particularly in Southern European countries over the past month and these should see further improvement as the holiday season approaches.

A resolution of any kind to the Ukraine situation would be just the tonic for European consumers to enjoy a summer holiday by the beach and then come back and refill their wardrobes.

There are still too many areas of uncertainty to say that we are out of the woods yet, but low supply will keep a floor in this market until the recess in seven weeks’ time.

Unless we see something miraculous occur it will probably just be a slow grind sideways until then, but maybe we will be pleasantly surprised too.