Wool market continues to nosedive as coronavirus threat escalates

Wool market continues to nosedive as coronavirus threat escalates

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AWEX has reported that the year-on-year movement for the Eastern Market Indicator is now down 525 cents a kilogram or 26 per cent.

AWEX has reported that the year-on-year movement for the Eastern Market Indicator is now down 525 cents a kilogram or 26 per cent.

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China is getting back on track, with most of the early stage processors operating at more than 70 per cent capacity.

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The wool market continued with the jitters last week and eased by 5.5 per cent in local currency terms.

However, a surging US dollar, which saw the value of the Aussie dollar plummet to .5508 at one stage, meant that prices in US dollar terms more or less crashed by 18pc throughout the week.

AWEX reported that the year-on-year movement for the Eastern Market Indicator is now down 525 cents a kilogram or 26pc, but when seen from an overseas customer's perspective, in US dollar terms it has declined US600c/kg or 43pc since March last year.

This obviously sends a large tremor through the processing fraternity who are obliged to buy greasy wool, ship it to Asia or Europe, store it in a warehouse, process it into wooltop, sell it on to a spinner who stores the yarn for a while, then sells it onto a weaver or knitter and so forth.

All of the stock in the pipeline took a haircut of nearly 20pc in value last week, so everyone is hopeful for some sort of a rally in the near term.

From a technical perspective, in US dollars all the main Merino indicators are now back to the price level of 2015, before we started this last decent rally.

On the Australian dollar charts, current prices for the average Merino micron is now sitting at the level we reached in early September last year.

Therefore, in Aussie terms the correction, down cycle or blip, whatever you want to call it, has now wiped 50pc off the previous rise that started in 2015 and peaked in early 2018.

So, by any of these technical measures, we should see a stronger market coming our way as early as this coming week.

Technical data is all well and good, and very useful to explain what happened, somewhat useful for predicting what might happen, but given the current situation around the globe, exceptions look like they could become the norm, so a recovery is not guaranteed.

Yet the greasy wool market is poised to shrug off the concerns, at least for a while and get back to work.

With the shutdown across Europe, America and various other parts of the globe gathering pace, not too many people are thinking ahead and planning for production to still be running as normal in March and April.

This is reverberating back up the chain and leading to requests for delays in delivery of tops, yarn and fabric from the early stage processors.

Whilst it is still out of season, and most people are just processing generic orders rather than specific deliveries at this time of year, every business has an eye on cash-flow and they do not want to get caught with a warehouse full of raw material, and no cash to pay the bills.

So there have certainly been some requests to delay a shipment here-and-there for a month or so until the picture becomes a little clearer.

Others have taken the opportunity to purchase new raw material at levels not seen since 2015.

When all the smoke clears, to use a long-forgotten bushfire analogy, Merino wool will be back on the buying list, and this week's prices will look very cheap.

It is fairly hard to imagine there will not be a renewed emphasis on clean and green, and healthy living once COVID-19 is a defeated bug.

Already it is possible to buy pure Merino face masks from one of our Australian based manufacturers.

If we are going to have to wear them, why not look stylish, and feel comfortable, as well as help to save the environment.

So, there are some delays occurring across different parts of the textile world, but there is also one important factor to consider which will drive the market for the short term, and that is China.

Despite what Donald might be trying to say, China is getting back on track and winding up the engine again.

Most of the early stage processors are operating at more than 70pc of capacity, with some already reaching 100pc.

Spinners and weavers/knitters are a little slower getting things ramped up, but now the Chinese government is beginning to crack the whip and asking why everyone is not back up and running.

There seems to be a definitive export of goodwill coming from China at the moment, with real concern, along with offers of support and supplies coming from the Middle Kingdom.

For the wool industry, it is more than that because in simple terms China uses domestically 60pc of the greasy wool it buys from Australia, and that market is back in business.

So that will be the trigger, or support for the wool market as the Chinese domestic market, with plenty of government assistance, cranks up again after two months of shutdown.

Already this is evident in other markets such as South Africa and New Zealand, where Chinese activity has ratcheted up a notch or two in the last few days.

Government department uniform orders are beginning to flow, and they will, as usual, be a large factor in creating demand, but with 1.3 billion Chinese still wearing face masks every day, if only we could get someone to mandate they are made from wool.

So, it will be a troublesome month or so ahead no doubt, but providing that China, Hong Kong, Taiwan, Singapore, Korea and Japan do not suddenly go backwards in terms of infections, it does provide some light at the end of the tunnel.

The automobile industry, always pretty quick to put their hand out for government assistance, has pretty well shut down in Europe, but the Volkswagen CEO did say most Chinese factories are now back up and running.

What was looking like a concerted effort to have less reliance on China across the supply chain a month ago, may yet turn back around to needing them to fill the gap, at least temporarily whilst the western world gets rid of this bug.

Hopefully, a sense of cooperation remains, rather than one-upmanship.

Aussie growers will keep producing the golden fleece and sending it out to the world in any case.

The story Wool market continues to nosedive as coronavirus threat escalates first appeared on Farm Online.

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