Wool breaks through 1000c mark

31 May, 2007 07:00 PM

The eastern market indicator (EMI) broke through the 1000c/kg mark at the close of sales last week and wool stockpiles have been diminished as brokers and growers cash in on the healthy returns.

The EMI was sitting at 1008c/kg clean last Friday and was closely followed by the western indicator at 1003c/kg.

The indicators have not looked back since January on the back of a steady decline in supply that is set to reach a historical low point this year.

Early in the year, market analysts and brokers remained cautious about talking up the high prices, particularly in a trade where price volatility was the common factor.

But wool seems to have bucked and dodged the majority of its traditional trends and for the first time in almost two decades is now worth US800c/kg in the international pipeline.

Australian Wool Services¹ chief economist Chris Wilcox said the wool trading climate had the potential to generate some exciting times for woolgrowers.

³We haven¹t see this kind of combination for quite a long time,² Mr Wilcox said.

³Demand conditions remain solid throughout the wool textile industry.

³So we really haven¹t had a combination with restricted supply, like we do now.²

The Chinese are Australia¹s biggest wool client, importing more than 60pc of the nation¹s clip.

They have traditionally been price minimisers and would often take a step back from the market during periods of increased prices, normally coupled to high Australian dollar values.

A shift of US1-2c in the exchange rate is compounded to an increase of 8-12c/kg in clean wool prices paid by the Chinese.

Mr Wilcox said the Chinese mills could start to buy wool from other nations such as South America if Australian prices became too high.

³They may look around for other sources of wool, even though the quality and quantity isn¹t as good,² he said.

³And all that will do is push the prices up from those sources.²

Mr Wilcox said an increase in the use of synthetics in woollen blends would often be the most likely scenario, if Chinese mills were going to reduce activity in the market during periods of reduced supply or fluctuating currency.

The 20-22 micron ranges would most likely be affected if the Chinese increased their use of synthetics during these periods.

³But given the current combination of solid demand and restricted supply, these kind of current price levels can be maintained,² Mr Wilcox said.

With shorn wool production at its lowest point in six decades, global demand for wool has not looked healthier in almost a century.

However, there are rumblings in the industry about trying to maintain wool supply with a declining national flock.

Evidence showing national Merino ewe numbers are moving towards a low-point and not recovering for many years, are beginning to emerge throughout Australia.



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