CHINA has long been “the” important player on the Australian wool buying scene.
But having reached a point where the Asian powerhouse buys 80 per cent of our clip and 95pc of our sales go through auction, Australian growers have found themselves in a tenuous position.
Australian Wool Innovation (AWI) boss Stuart McCullough said this needed investigating. Tightening Chinese fiscal policy and credit in the past 12 months has affected prices.
“We have certainly seen them tighten things up and they are clamping down on corruption and they are not lending in the way they were,” he said during a visit to the Hay Sheep Show.
“However, we think it’s an initial tightening which will loosen up as the year goes on and the wool market should improve.”
He also highlighted 1000 cents a kilogram (the Eastern Market Indicator (EMI) currently is 1021c/kg) as a tipping point below which wool lost growers to other industries.
“That is the vagary of the open cry auction system, and something we are focused on”
“It’s going to upset some people and make some people happy, but the money that you (woolgrowers) provide AWI is about making more money for you,” he said.
“We think this is a touchy point for woolgrowers that needs to be looked at. We can’t think of a time in history when this has ever been looked at before, so we are very keen to make sure we study the auction system transaction between the first owner and the second owner, and to make some suggestions on how we can improve that in the next 12 months.”
He said buyers had raised the supply issue, pointing to the New Year market being flooded with more than 50,000 bales.
“When the market is falling the buyers just sit on their hands and they naturally won’t bid on a falling market - and that is the vagary of the open cry auction system, and is something we are focused on,” he said.
“They are not going to grab a falling knife. They will wait until it hits the ground and then bid away”
He said Chinese buyers likened the situation to “catching a falling knife – they are not going to grab a falling knife. They will wait until it hits the ground and then bid away”. However, he made it clear AWI had little ability to effectively influence supply.
“We are looking at the selling system, mainly the auction system and the lack of other alternatives and getting some suggestions in that area,” he said.
“(We are going to) see if there is some renovation that can be done to the auction system and recommendations that can be made for potentially selling wool in other ways.
“For some reason the auction system sells 95 per cent of the Australian wool clip. We can’t see that in any other commodity in Australia and anywhere else in the world.”
In terms of wool prices, Mr McCullough said AWI was budgeting on an average of 1100c/kg EMI for 2014-15 and national wool clip of 330 million kilograms.
“We are not happy with where the market is at the moment,” he said.
Mr McCullough said the tightening of fiscal policy was largely because of China’s new administration, which entered office late last year. AWI will commission an international consulting firm to conduct the study during the next 12 months.
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