A “crazy” wool market

28 Aug, 2018 04:00 AM
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IN a remarkable week of record wool sales, buyers at the Western Wool Centre (WWC) appear to have been swept up in what has been described as “a perfect storm”.

“Crazy” was another description, by PJ Morris Wools buyer Darren Calder, of frenetic WWC trading on Wednesday last week, the only day wool was auctioned in WA due to a lack of supply.

The Western Indicator (WI) – a general guide to the strength or otherwise of WA’s wool market – rocketed up 121 cents, or 5.6 per cent, its biggest one-day gain in almost 16 years, as circumstances conspired to favour sellers against buyers.

The WI set a new record of 2279 cents per kilogram clean, 36c higher than its previous record set on June 28, the final WWC trading day of last season.

Records were also set by every fleece micron price guide in the 18-21 microns range at the WWC, Australian Wool Exchange (AWEX) statistics showed.

With no further wool auctions scheduled until next Wednesday and Thursday, traders looking for any type of wool to start restocking empty supply pipelines into China, Europe and India after the end of the financial year had no choice but to join a bidding frenzy and pay the price.

Peter Scanlan Wools buyer Steve Noa said he bought 220 bales of fleece wool on the day and paid more than $1 million for it.

“It certainly was the perfect storm, but while wool was expensive to buy on Wednesday, it was not that difficult to sell on Wednesday night and on Thursday, which is a good thing,” Mr Noa said indicating processors expected to pay more in future to secure a share of an uncertain supply.

Westcoast Wool & Livestock broker Danny Ryan agreed.

“A perfect storm is a good way of putting it,” Mr Ryan said of the predicament wool traders found themselves facing on Wednesday last week.

“But high as they are, I don’t see these prices as unsustainable.

“We’re only going back to where we were in the best weeks of last season and the buyers could afford it then - they mightn’t have liked it, but they could afford it and no one went broke,” he said.

Buyers and brokers agreed a particular set of circumstances led to the price hikes which pushed wool sales gross turnover at the WWC beyond $11.2 million for the day - exceptional, but no record purely because of a small offering.

Due to a lack of wool and the annual recess, Wednesday last week was only the sixth trading day at the WWC so far this season.

Record prices in May and again in June and end-of-financial-year considerations had seen wool pipelines emptied, with no one carrying stocks.

Traders had banked on an increasing flow of wool from early spring shearings to take pressure off supply, lift quality to enable them to average across consignments and constrain prices enough for them to begin restocking.

They need to be carrying some wool before they take on a supply contract in order to be able to guarantee filling the contract and avoid penalties - they have to balance the cost of financing buying and holding wool against a risk of being forced to buy on unfavourable terms just to fill the contract.

Several traders had been quiet during the first two days back after the annual recess, waiting for the influx of new-season wool, but it failed to show.

Wide-spread rains have delayed many shearings by two to three weeks and it may be well into next month before shearing schedules catch up and a steady stream of wool starts flowing into wool stores.

Not prepared to risk waiting another two weeks and what a volatile wool market might do in the meantime, traders had to buy at any price on Wednesday.

In their favour was the Australian-United States currency exchange rate bottoming at its lowest point for nearly two years on the same day.

A local dollar worth just on US72 cents absorbed much of the price hike shock for international buyers who pay for wool in US dollars.

Melbourne and Sydney live auction wool markets also experienced massive price rises last week, driving the Eastern Market Indicator (EMI) - an amalgam of prices from all three centres and often quoted as a guide to Australian wool prices - up 99c on Wednesday, its largest daily increase since 2002.

Trading three hours behind the Eastern States, the WWC auctions took the big rises over east and rammed even more money onto them.

While there was insufficient wool in WA to warrant a second auction day last week, solid gains continued at the Melbourne and Sydney centres on Thursday, pushing the EMI up a total of 126c - its biggest weekly increase since 2002.

Nevertheless, the WI still leads the way, 116c higher than the Sydney Indicator, 163c higher than the EMI and 192c higher than the Melbourne Indicator at the end of the week.

To put Wednesday’s meteoric rise into perspective, as the WI set and reset records multiple times last season and moved beyond 1900c/kg for the first time ever, its best weekly rise was 102c for the February 7 and 8 trading days, according to AWEX.

Its best one-day increase last season was 80c back in December.

“We knocked that out of the park,” said AWEX technical controller at the WWC, Andrew Rickwood.

“Although a lot of records were set last season, the rises were incremental and prices moved up steadily,” Mr Rickwood said.

“(On Wednesday) at times the trading was quite surreal.

“It left a number of people here speechless,” he said.

In his usually understated market report Mr Rickwood noted the WWC Merino fleece market “has experienced a day of extreme rises”.

“All types and descriptions sold at levels 130 to 160 cents above those achieved at the previous sale.

“Small impurities were largely overlooked as buyers attempted to secure meaningful quantity of the limited selection.

“The large price increases have resulted in the (WI) and all individual micron price guides achieving new all-time highs, easily surpassing the records set earlier in the year.”

The strong demand extended to Merino skirtings which were 100-130c/kg dearer and also to locks, stains and crutchings wools which were generally 40-60 cents dearer, Mr Rickwood noted.

The buyers’ scramble to secure what they could of the 4460 bales on offer was led by the back row of the auction room with Alan Brown buying for Seatech Industrial and Perry Roberts buying for Lempriere Australia.

Most of the sale was a bidding war between them and buyers in the row immediately in front - Darren Calder for PJ Morris Wools and Russell Fraser for Techwool Trading.

On crutches after knee surgery Mr Brown had not featured in the previous week’s buyers list, but a lack of mobility did not hinder his bidding last week and he snapped up 763 bales, or 17.4pc of the offering, for Seatech.

Lempriere was the next biggest buyer with 624 bales, or 14.3pc, then PJ Morris with 592 bales, 13.5pc, and Techwool with 534 bales, 12.2pc.

The passed-in rate was just 2pc.

Demand was strongest and price rises biggest towards the finer end - 18, 18.5 and 19 microns.

The 18 micron price guide jumped 163c to 2580c/kg, 62c better than its June 28 previous record, the 18.5 micron guide jumped 152c to 2521c/kg, 93c above June 28 and the 19 guide climbed 148c to 2472c/kg and 73c up on its June 28 previous best.

The 19.5 micron guide beat its June 28 record by 50c, rising 155c to finish at 2423c/kg.

The 20 and 21 micron price guides broke June 27 records by 25c and 10c respectively, finishing up 141c at 2388c/kg and up 136c at 2357c/kg.

Merino cardings’ price guide rose 42c to 1534c/kg but was the only WWC price guide not to break a record last week, finishing 30c shy of its January best.

Based on turnover, the average price of a bale of wool sold at the WWC on Wednesday last week was $2566.94.

Melbourne and Sydney wool selling centres are trading this week, Wool Week, while the WWC remains closed because of a lack of wool.

What happens to prices in Melbourne and Sydney this week is expected to set the scene for when the WWC resumes trading next Wednesday.

FarmWeekly

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