Wool market continues to fluctuate but short-term signs are positive

China is waking up to wool

Wool
Fine lines are doing well in a wool market that continues to yoyo on the back of currency movements and global economic hiccups.

Fine lines are doing well in a wool market that continues to yoyo on the back of currency movements and global economic hiccups.

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It may be a rough ride but the short-term outlook for the wool market is positive.

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Australia's wool market eased slightly last week, not helped by a stronger local currency or subdued Chinese demand.

Superfine Merino fleece lots with good specifications were again the wools that found best buyer support, and mostly closed at slightly better levels than the previous week.

Medium Merino types closed down 20 cents a kilogram on the whole, and skirtings for knitwear production with less than 5 per cent vegetable matter (VM) achieved similar results to their fleece counterparts. But those with more than 5pc VM struggled a bit more.

Crossbred wools still appear lost and are looking for friends, and so drifted lower.

And carding wool values, again mostly destined for the knitwear sector, were mixed.

These types basically sold according to their processing characteristics, with well prepared, good colour lines faring better than those containing excessive stain.

Chinese demand was very lacklustre at the start of the sales period, as mills in the main processing area of Zhejiang Province reported either zero electricity availability, or restricted supply.

This obviously affected their ability to process greasy wool and, therefore, their appetite to buy more.

As the week went on, discussions with local Chinese government officials - who hold the keys to the power boxes - sorted things out a little more and, given the cheaper prices on offer, new wool orders started to appear.

The market firmed on the second day of selling as a result and, by the close of auctions, the market was humming along quite nicely again - and some reports had prices back to where they started the week.

Inquiry from China has continued since the auctions closed, and most people are suggesting a dearer market this week - by as much as 30c/kg.

So, the yoyo continues.

In other wool markets around the world, mixed results were evident.

In South Africa, where 36pc of the Merino wools offered carried a sustainability stamp, prices were 1.5pc dearer than the previous week.

In New Zealand, despite the buyers pedaling furiously, prices were 2pc cheaper.

In Argentina, shearing is underway but growers are reluctant to part with their wool, and potentially, lose a big chunk of the proceeds to the government. So, farm stocks there are building.

In Uruguay, more sales of greasy wool took place than in the past couple of months, and over a wide variety of microns.

But these tended to be spasmodic, one-off deals with no consistent pattern emerging.

Crossbred stocks, in Uruguay in particular, are building as new shearing adds to those clips already held in-store or on-farm - given growers' reluctance to sell at current crossbred prices.

Australian crossbred growers need to take note and heed the market signs, as we are but a "drop in the ocean" when it comes to world production of crossbred wools.

So, the outlook for the Australian wool market in the short-term is positive, with plenty of fresh Chinese business having been done - in addition to the existing orders from Italy and, to a lesser degree, India.

If the Chinese local government officials can find a way to prioritise electricity supply to businesses, and not incur the wrath of Beijing, the early stage processors in China should have plenty of appetite in the coming months.

It would appear that the United Nations Climate Change Conference (COP26) has come around at the wrong time for China.

Although it is keen to participate and turn around the massive carbon emitting ship that is the Chinese industrial economy, turning off factories and further slowing an already weakening economy - or having people unable to heat their homes in the upcoming winter - is not a decision that is palatable to the government.

Chinese domestic demand has kicked back into gear, at least temporarily, having been waning since the resumption of sales after the winter auction recess.

If it is sustained, this will provide a very good base for the wool market - as European activity, although a little quiet last week, still has a lot further to run this season.

So, all being equal, we should see firming prices - starting this week and then more or less continuing through until the new year.

Some of the other textile fibres have been going berserk in price, and so the backdraft from when their balloons pop could be tumultuous.

But, overall, the trend for the wool market should be gradually rising through until autumn 2022.

The currency is another significant factor that will come into play and affect the fortunes of woolgrowers in coming months.

It would seem that the US Fed Reserve is now clearly on a path to gradually turning off the tap - or, more correctly, the firehose - of free money which it has been spraying around now that the pandemic is receding and inflation is rising.

Initially this will result in a weaker US Dollar, as we experienced last week.

The stronger Australian Dollar will be a headwind for higher prices and grower returns.

But the currency markets are much more fickle than the wool market, and we could easily see the US Dollar get stronger in coming months as well.

There is no doubt that rising energy costs, oil prices and logistics costs are all contributing to higher inflation pressures around the world.

All Reserve Bank boards, except probably in Turkey - where they tend to get sacked for doing something the President dislikes - will be looking to raise interest rates to tame the inflation "genie".

When it gets out, it is particularly difficult to contain again.

So, maintaining a little bit of inflation - but stopping it from becoming a big bit of inflation - is their driver to acting early.

How the average consumer fares during this economic balancing act will be interesting.

But, increasingly, the wool industry is focusing on the high net worth, environmentally conscious, affluent consumer who has plenty of cash reserves built-up after 100-odd days spent in lockdown- and is certainly double vaxxed against COVID-19.

The story Wool market continues to fluctuate but short-term signs are positive first appeared on The Land.

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