Market indicator rises after recess

By Elders Wool
Updated January 18 2022 - 4:26am, first published January 17 2022 - 4:00am
HAPPY NEW YEAR: Medium Merino wools are likely to continue to range trade plus or minus 50 cents per kilogram of current levels for the next three months.

And just like that, the Australian wool market bounced out of the blocks to greet the new year with enthusiasm.

Perhaps there was a little too much exuberance, but time will tell.

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It was not the 100 cents per kilogram jump we have often seen in January in pre-COVID times.

But it was almost exactly the same rise as we saw in January 2019 and 2020.

Perhaps this could have been a harbinger of a return to some form of normality in 2022.

Chinese traders had been active in the week prior to sales starting, as combing mills there decided to build a little stock in case current logistics issues get any worse.

Not many Australian exporters were willing to sell what they didn't already own. So, the pre-sale estimates of a US30c/kg rise was notched up faster that a Travis Head century.

The fact that the market continued to climb, steadily, until the close of play on Thursday means it has likely built a solid foundation with which to continue next week to start the year.

Some in the trade, particularly in the early stage China segment, are wondering if they will be able to pass on these new price levels in the short-term, given the pending shut-down for Chinese New Year and the probability of a reduced labour force yet again following the resumption of activity in mid-February.

Already some processing mills have seen a further reduction in labour availability as workers begin to head home for the Spring Festival.

New Year's Day in China is not until February 1.

But given the travel restrictions in the nation, and the fact that these are likely to get even tighter in the lead up to the Winter Olympics, and that many did not make it home last year due to COVID travel bans, a lot of mills are struggling to find enough workers.

It is hard to imagine in a country of 1.4 billion people that labour would be scarce.

But the facts are that some textile jobs are unappealing, especially night shift, to the younger generation.

As usual, there is plenty of conjecture about the different micron categories and whether these might go up or down compared to the rest of the clip.

From a technical point of view, the 18-micron and finer lines are bumping up against resistance at their current US Dollar prices.

So, they should pull up now - or push through the resistance and casually add another $1/kg in price.

This would bring them back up to the price level that they reached in June last year.

Some buyers and processors will choke on their morning croissants if that happens, as they are already finding it tough to keep consuming at the current levels.

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Quite a few traders followed the market, and then added a bit more for their weekly offers just in case.

They are now pruning these back as the buying trade - in China - is not prepared to accept this higher price level at the moment.

Other players, with more connections in Europe, are more bullish about the superfine segment purely based on the lack of supply compared to typical years they currently see in boxes on the showfloor.

Those in control of the supply levers - growers and their brokers - will no doubt try to form a view as well, and may withhold wool if the price doesn't keep rising.

But they do need to be aware that price resistance is a real and present danger, and while greed is good, the bubble can burst too.

The medium Merino segment beats to a different drum at present - as it has for the past 12 months or so.

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Supply is growing as the Australian sheep flock increases, cuts per head rebound further with good seasonal conditions and growers continue to invest in the superior genetics of the dual-purpose Merino.

But demand is also strong, if not growing.

Chinese uniform orders make up a substantial volume of worsted fabric production in China currently and, with the Chinese Military due to place its annual order after the New Year, another million or so uniforms will be needed.

The government always has the ability to increase the frequency of uniform renewal as a means of stimulus for the textile trade.

But currently it has not seen the need to do so.

This may change in coming months as China's economy slows and the real estate saga begins to bite.

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But with China's exports notching up another new record trade surplus of $676 billion in 2021, the need to act immediately is not really there.

So, medium Merino wools are likely to continue to range trade plus or minus 50c/kg of current levels for the next three months.

Crossbred wool price levels are unfortunately still struggling to keep a head above water.

The New Zealand market had been showing signs of recovery pre-Christmas.

But last week, with a fairly big sale, a quiet recess, scouring, dumping and shipping congestion creating funding issues it was a pretty ugly report card from over there.

One day, their traders will be able to travel again.

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But this is not looking likely in the short-term - much to their frustration.

They have been able to sell quite a bit of wool at current levels, but using the phones and telex machines.

So, the market should stabilise now and start to pick up.

Some new and exciting products are in the pipeline.

But the development process does take quite a bit of time.

There is also the veritable stockpile of this coarse wool lying around the world.

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So, the creative people at The Woolmark Company and their partners obviously need to keep coming up with more new developments to commercialise - alongside those already in the pipeline.

Overall, 2022 is shaping up to be a positive one.

The Ashes have been retained, La Nina is still hovering around and the world is getting on top of Omicron - and the wool market looks solid.

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