WA wool market value holds steady

31 Aug, 2012 02:00 AM
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ALTHOUGH there were no sales in WA last week the market showed some encouraging signs in the other centres.

With 34,190 bales on offer and 29,923 bales cleared to trade, the pass-in rates were at the lowest levels since the season opened.

For all regions the market dipped significantly on the first two days of sales and firmed on the last day.

The Eastern Market Indicator (EMI) fell 10 cents a kilogram on the first day and saw another fall of 7c/kg on Wednesday.

But by Thursday things were looking up gaining 9c/kg to finish the week at 941c/kg.

Again, the greatest falls were seen in the finer wools and the largest gains came from the 19.5 to 21 micron lines.

Despite the wool market being slightly gloomy of late, prices were still holding up relatively well compared with the average over the last 14 years.

Information supplied to Farm Weekly by the Australian Council of Wool Exporters and Processors (ACWEP) shows the average wool price for the west since the 1999/2000 season sits at 848c/kg, and for the east at 883c/kg.

This week's Western Market Indicator sits at 974c/kg and the EMI at 941c/kg.

ACWEP executive director Peter Morgan said although the past few weeks had not been good, there could be a turn around in the next few sales.

"It was described to me that last week it was a very firm market with lots of interest and everyone is hopeful that will carry through to next week," he said.

"By and large, among the trade, when you have situations like this there is a bit of watching and waiting until the market is level and I think that may have occurred this week."

However, Mr Morgan said there were conflicting signals heading into this week because of the news of Greece wanting to defer on its first repayment.

He said although Europe was only a small part of the Australian customer base, it tended to have a good influence on the market.

"When Europe is strong the market usually reacts in a positive manner," he said.

"This latest situation in Greece won't help global economic confidence.

"As this confidence slips customers will become wary of over-extending themselves.

"Whether this Greek thing will cause a problem, we don't know yet."

Although Europe continued to play a part in the Australian wool industry, the focus remains on China and its increasing disposable income.

Mr Morgan said China buys about 75pc of Australian wool, a figure which was not likely to change anytime soon.

"One of the significant factors in the good prices we have seen was the growing middle class in China," he said.

"But China is fairly quiet at the moment and demand seems to have flattened out a bit.

"I don't really know why but I suspect it comes down to the fact you don't go and buy a wool suit every week.

"To some extent once you are kitted out, that will last you a while.

"Either way China has been very positive for Australia."

Mr Morgan said what really hurt the first sales of the season was a high exchange rate which coincided with a weakness in demand for wool.

"Since the Global Financial Crisis the price has tended to follow the exchange rates up and down," he said.

"If global confidence drops then the exchange rate drops.

"But since mid-June we have had a change and Australia has been seen as a safe haven which accounted for a spike in the exchange rates over the last four or five weeks.

"Unfortunately this occurred when there happened to be a weakness in demand."

And it wasn't just wool that was feeling the pinch, other fibres such as cotton and polyester were also struggling to hit the high prices.

Mr Morgan said although the wool price was largely impacted by supply and demand, Australia was experiencing an upset in that supply and demand curve.

"Supply is at historically low levels and the demand just isn't there," he said.

"But we haven't had too many cycles in the last 20 years that the upward cycle has lasted more than a couple of years, so it is a cyclical thing."

However, looking forward things weren't all doom and gloom and September could put a spring back in the market with Mr Morgan expecting demand to go up over the next few weeks.

"The pipeline is fairly empty and it would be reasonable to expect that at some stage, people will be restocking," he said.

"People like to keep their machinery going so I think demand will go up in line with that and they could be waiting for spring when there will be bigger volumes coming onto the market."

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