Lack of finance slows WA wool market

Lack of finance slows WA wool market

Wool
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While increasing volumes of drought-affected tender wools coming onto eastern markets drove price deterioration there, in WA buyers appeared to have temporarily run out of money.

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WA’S live auction wool market stumbled last week and followed the Eastern States’ wool markets lower, but possibly for a different reason.

While increasing volumes of drought-affected tender wools coming onto eastern markets drove price deterioration there, in WA buyers appeared to have temporarily run out of money.

Having ignored downward pressure in the east and a massive bale offering at the Western Wool Centre (WWC) the previous week, the Western Indicator succumbed last week and slipped 20 cents to 2157c a kilogram greasy.

That was more than double the drop by the benchmark Eastern Market Indicator, made up from the main South (Melbourne) Indicator down 11c and North (Sydney) Indicator down 5c.

Falls for the week by most individual micron price guides at the WWC were larger than for corresponding guides in Melbourne and significantly larger for all WWC guides than the much easier declines in Sydney.

This was despite the weekly offering at the WWC retreating from 11,507 bales the previous week to 8215 bales.

The 19 and 20 micron wools were particularly out of favour on Thursday after 21 micron was unloved on Wednesday.

As Australian Wool Exchange (AWEX) technical controller Andrew Rickwood pointed out in his regional market summaries, sellers attempted to resist downward pressure by sticking to their reserve prices.

As a result, almost 18 per cent of the WWC fleece offering was passed in on Thursday and more than 20pc failed to find a new home on Wednesday, Mr Rickwood said.

Melbourne and Sydney wool auctions last week exhibited classic two-speed market symptoms.

According to AWEX, good demand kept prices stable for small volumes of better specification wools but large volumes of lesser spec drought wool, bringing lower prices, dominated those markets.

There has been plenty of lesser specification tender wools in WA too, but from a dry period last autumn and early winter, when many woolgrowers were hand feeding flocks, not from prolonged drought.

They were more prevalent after spring shearing, but the autumn-shorn wool coming through the WWC now is tending to be better specification.

The high proportion of mid-break wools that bedevil eastern markets is not present at the WWC – any weakness along the wool staple stemming from the dry period last year has by now grown out to the tip, which is lost in processing anyway, so has no bearing on price.

It was a point made by Dyson Jones Wool Marketing Services’ State manager Peter Howie at the Make Smoking History Wagin Woolorama on Friday.

“The autumn wools coming through now look pretty good and they’re a slightly better cut (per sheep) than the earlier ones,” Mr Howie said.

Veteran broker, Scanlan family patriarch and Scanlan Wools managing director Peter Scanlan pointed to buyers’ fully-extended credit facilities as the reason behind last week’s WWC stumble.

“We had a bit of a correction last week but that was mainly due to cash flow (finance constraints on wool buyers),” Mr Scanlan said.

“We had two whopping big weeks and with the finance you need – one buyer (the previous week) spent $25 million – you can’t sustain that sort of expenditure without payment.

“The problem is we can’t ship wool fast enough for the price of the wool at the moment, so you are going to have these hiccups.”

Wool traders pay by electronic transfers after an auction or as soon as they’ve rechecked sample boxes if there is a query on specification, so they have to have sufficient money in their account for the transaction to go through and it leaves their account immediately, otherwise the wool store will not release the wool.

The trader then carries the cost of those transactions, plus earlier and subsequent wool transactions, until they have purchased sufficient wool to complete specific consignments, ship those consignments to clients in China and receive and deposit payment for them back into their account.

But Mr Scanlan was confident any impact finance constraints might have on the WWC market will be temporary.

“I was talking to (Australian Wool Innovation director and former chairman) Wal Merriman (at Woolorama) and he was saying that with the drought over east it will take at least three years for their sheep numbers to come back to where they are,” Mr Scanlan said.

“(Sheep) numbers aren’t going to increase, so the prices we are seeing (for wool) could be here for a very long time so everyone will have to get used to it.”

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