Wool market shrugs off coronavirus concerns

Wool market shrugs off coronavirus concerns

Sheepmeat
Last week, the wool market showed considerable strength across virtually every micron group and quality type.

Last week, the wool market showed considerable strength across virtually every micron group and quality type.

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Last week saw the wool market in Australia shrug off concerns over the coronavirus and get down to business working on refilling the pipeline.

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Often the wool market leads the way, or more likely just recovers quicker than many of the other economic indicators.

Last week saw the wool market in Australia shrug off concerns over the coronavirus and get down to business working on refilling the pipeline.

Many had expected a bit of carnage in the auction rooms, but instead, the market showed considerable strength across virtually every micron group and quality type, as buyers from all parts of the globe had a crack.

The overall market indicator rose by 30 cents a kilogram in local currency terms and a solid 2 per cent in all of the major currency groups.

Comparatively the iron ore price was down by 10.3pc for the week, so the wool market is doing very well.

Some in the industry are asking why is this so?

Everyone assumes the bulk of the Chinese consumer market is sitting at home in a quarantine situation not visiting retail outlets.

Perhaps they are doing this online, given the well-established preference by Chinese "netizens" for shopping online these days, or perhaps we are simply at the end of the retail season anyway, and the trade is just looking ahead to the 2020/21 season.

Either way, the wool market has at least temporarily, shrugged off these concerns and focused on the season ahead.

European, Indian and other Asian countries are all operating more or less full steam ahead, and production managers are searching high and low for wool to process.

Given the dominance of China in the early stage processing sector, and the longer than expected closure of these mills, wooltops are becoming a scarce commodity in Europe.

South American mills had decided pre-Christmas to take a much longer than usual break, due to a lack of work and/or raw material, and their shipment time to Europe is considerable, so they are unable to quickly fill the void.

The European based processors have their own commitments and there is enough uncertainty about when the Chinese mills may or may not restart production, to keep everyone guessing.

Larger spinning mills in Europe simply have to buy from the meagre supplies in the spot market and worry about Chinese supplies when they do become available.

Ironically, many of the spinners, knitters and garment makers had been sitting back, milking the just-in-time philosophy to the max, and are now a tad embarrassed by their lack of stock reserves.

The whole experience of this supply chain shock may actually be enough to swing the pendulum back towards a bit more forward buying in the future.

Information coming out of China and being bandied around the airwaves is constantly changing, and a lot of it seems without much credibility let alone fact checking or cross referencing, as seems typical of the media world in which we operate these days.

The WHO is trying to keep the management of the flu epidemic on track and methodical.

Initially, markets such as equities reacted badly, but then mostly recovered or even increased such as the Aussie stock market, which is up about 3pc since the crisis began.

The Chinese equity market, which had been closed for much of the initial build-up due to Chinese New Year holidays, opened to a fairly hefty correction of 8pc, but this was not sustained and the market did not continue to fall on the second or subsequent trading days.

The Chinese government has been sprinkling liberal amounts of cash throughout the economy and providing business assistance packages left, right, and centre.

Their seemingly draconian measures that have shut down huge parts of the country and virtually kept 20pc of the world's population isolated in their homes for the past two weeks, have no doubt reduced the speed of transmission.

Whether these measures are enough in the long term, or whether the horse had already bolted back in December, will be a point of discussion for months to come.

For now, supply chains in virtually every industry are being stretched, sometimes to breaking point.

However, the wool fibre is known for its strength as well as elasticity, and similarly, those operating within the industry have always generally found a way to soldier on, if not show a few other industries how to do things.

Mills in China can officially restart production as of February 10, however, it is unlikely that many will actually be turning machines on come Monday.

The workers returning from other cities and towns must register their travel movements with the local authorities, and those deemed at risk will be quarantined for a further 14 days at the workplace.

No doubt local officials will now err on the side of caution when making judgements about risk, so it will take quite a while for mills to gather a workforce to restart production.

Other factories are simply electing to remain closed for another week at this stage, with only essential office staff returning to send documents out and the like.

With a fair degree of idle capacity, or machines which were running on reduced capacity pre-closure, mills would theoretically have the room to catch-up on this missed production over the next couple of months, but the big question is when the first machines will start to turn over.

The most commonly held position at the moment is that we cannot expect to see any new production coming off the combing machinery until March.

This may be a little pessimistic, and there is some product sitting at the wharves and in warehouses, but essentially that would see no new production of tops or yarn reach Europe until the end of April, which may test the elasticity of the supply chain to the very limit.

In the meantime, the greasy wool market is being balanced very well, although probably not consciously, by the growers on the supply side of the equation.

Drought is still reducing the overall supply, certainly by more than the official numbers show at present, and the withdrawal or pass-in rates on a weekly basis mean that the weekly offering is no more than what the mills need to buy at present, so a firm market should be sustained for the medium term at least.

The story Wool market shrugs off coronavirus concerns first appeared on Farm Online.

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