WESTERN Wool Centre (WWC) live auctions last week recorded a clearance rate of just 41 per cent, the lowest in 16 years.
Price reductions of between 53 and 81 cents a kilogram clean across the 18-21 micron price guide spectrum took brokers and woolgrowers by surprise during last week's one-day WWC sale on Wednesday.
The wool market had finished the previous week very soft after an earlier larger fall, so buyers were not confident going into last week's sale, according to Australian Wool Exchange (AWEX) technical controller at the WWC Andrew Rickwood.
He said when early prices from Melbourne and Sydney selling centres, trading two hours ahead of the WWC, showed a sharp dip, buyers at the WWC hedged their bets, waiting to see at what level the market would settle.
At one stage more than half of the fleece lots on offer were passed in after failing to attract a bid or bidding not reaching the reserve price set by the woolgrower.
"The large reductions in price resulted in a passed-in rate of 48.7pc,'' Mr Rickwood said.
"When combined with the 10.39pc of wool withdrawn prior to the sale (after it became obvious from early Melbourne and Sydney sales that prices were going to tumble), that meant that only 41pc of the original offering was sold to the trade.
"According to our statistics guru, that's the lowest clearance rate in the west since 2003."
It relegated a 47.4pc passed-in rate last September - recorded when the market took a surprise bigger dive than it did last week, but it pulled out of that dive the following day and continued to gain strength in subsequent weeks as new wool from spring shearings came on line.
It proved to be the second worst week since 2003.
But anecdotally, according to brokers, most of the wool that was passed in on Wednesday last week was subsequently sold by private treaty to buyers the next day, once brokers had a chance to contact their clients and explain the market situation.
At 2134c/kg, only the 18 micron price guide hit its lowest point for the season last week, according to AWEX statistics.
While there is only a 30 cent spread between the 18 and 22 micron guides because of larger price falls towards the finer end, all of the other price guides are between 26 and 71c/kg above their lowest price this season and still significantly well above their average prices for last season and the previous season.
As a general guide to the strength of WA's wool market, the Western Indicator (WI) - it finished last week down 58c to 1937c/kg clean - dropped below 2000c/kg on May 16 for the first time since Wednesday, December 5.
Counting last week, the WI has only been below 2000c/kg on 10 trading days this year - mostly, that was on consecutive trading days for the first two weeks of November and then on consecutive Wednesdays through to December 5.
The lowest level the WI has sunk to this season was 1926c/kg on November 14.
But supply uncertainty, rather than price or demand, appears to be the major constraint on the WWC market looking forward.
Last week's one-day sale was caused by a lack of sufficient wool available to warrant a second sale day and only one day was scheduled for this week for the same reason.
No WWC sales are scheduled for next week.
At this stage, the following week - week 50 of the financial year - is listed for two sale days with an early estimate of 7200 bales on offer.
But that could change depending on what the Melbourne and Sydney wool markets do today and next week while the WWC is closed.
No sales are scheduled for week 51 at the WWC, then, after the final sales this season, there will be first sales of the new season - traditionally larger sales - followed by a second sale week before AWEX's annual three-week recess for the rest of July.
The selling schedule then lists two more WWC selling weeks before a week off for Wool Week in the middle of August.
Effectively what that means is between now and September there will be at most only 14 sale days at the WWC with predicted small offerings, a good percentage of which buyers will have inspected and rejected one or more times previously.
Any buyer who hasn't finalised current orders could have difficulty filling a shipping container with a specific quality or type from wool likely to be on offer before new season wool from spring shearings starts to trickle through in September.
The northern hemisphere summer live sheep export ban, which is just about to come into play with the departure of the last live sheep carrier out of Fremantle on the weekend until at least September, is expected to significantly exacerbate the wool supply problem this winter at the WWC.
There will be no "prem (short staple wool from premature shearings) shippers wool" from sheep being prepared for a sea voyage to bolster supply.
A person who works in the live sheep trade but who did not want his name or organisation identified because of the issues surrounding the trade, confirmed the three-month live export shutdown could see between 1000 to 1200 bales of shippers wool not offered through the WWC this winter.
"Normally we would shear somewhere between 20,000 to 30,000 sheep for each shipment to make sure they are under 20-25 millimetre wool length," the spokesman said.
"With three or four shipments, this (winter) is usually our busiest time for shearing because most of the sheep we buy have longer wool on them - they're between autumn and spring shearings.
"Normally we would shear them and send the wool off to be sold through the (live) auction system, but that won't happen this year.
"The sheep will still have that wool on them, but without the incentive of selling them into the live sheep trade, growers are unlikely to shear them now until September," he said.
Nationally, wool growers' confidence was shaken last week when wool prices slipped to their lowest level in six months.
This week the AWEX eastern market indicator (EMI) declined by another 60c, finishing on 1833c/kg clean, even with a more confident tone reported in Sydney's Thursday auction.
According to industry analysts the ease of price can be attributed to three elements - the removal of China's ban on South African wool, the flare-up of United States-China tensions and a decay in confidence caused by a slowing demand.
The Chinese economy is vital for the prosperity of Australia's wool industry with three quarters of Australian product sold and processed in China.
Over half of all the wool garments produced in China end up in their domestic market.
Australian Wool Innovation (AWI) trade consultant Scott Carmody said although prices remain reasonably strong historically, there is a definite lull in confidence.
"Whether or not the market bounces back to where it has come from, we don't know," Mr Carmody said.
"We have been expecting this price back-off to come for the past six to seven months but the market continued to drift along.
"It's a tricky situation at the moment and a few elements going on at the same time are compounding it."
Mr Carmody believes the demand for wool has been eroding for the past six to 12 months.
"When we hit the highs in the market back in August, we were already seeing a bit of decay in demand back then," he said.
"It's taken almost 12 months to surface.
"Factories went through their cheaper stock, suddenly got burnt on buying expensive wool and now they are trying to find a level where they can sell product into the market again and make money themselves."
Mr Carmody said it revolved around the global economic situation where consumers had reverted back to their cautious spending nature that was seen back in the late 1990s up until the period between 2010-12.
"The consumer has become very cautious and tending to not spend their money," Mr Carmody said.
"The areas we have identified is the middle-class in China and also in Europe.
"It is getting very soft in the spend."
National Council of Wool Selling Brokers of Australia executive director Chris Wilcox said by China importing scoured wool from South Africa again without any restrictions means there is an additional supply of wools available to Chinese mills.
He also said the Donald Trump administration in the US surprised most observers by announcing that 25pc import duties would be imposed on about US$200 billion ($289b) of imported products from China, an increase from the existing 10pc.
Those products included wool products, including greasy and semi-processed wool, wool yarn and fabric as well as wool carpets, but importantly for Australia, not wool clothing.
Mr Wilcox said the situation made the outlook more difficult than in the past two years for Australian wool.
"While the flare-up of the US-China trade war doesn't directly affect wool, it does add to the uncertainty for the global economy," Mr Wilcox said.
Australian Wool Innovation chief executive officer Stuart McCullough said there had been a drop in Australia's biggest consumption market, China, and with no growth in Europe and Japan, it was going to have an impact.
"The synchronised and harmonised growth we had in the world economy for the past four years, doesn't seem like it is going to be there in the future," Mr McCullough said.
"Not only will our product will be affected, but consumer spending habits as well as dropping confidence."
Mr McCullough said to have a rise in the market, demand must be slightly above supply, but if demand was slightly below supply, it would go in the other direction.
"I don't know whether supply will cancel out the drop in demand, but there is certainly a drop in demand and a drop in supply," he said.
"As much as I don't like to talk the market down, I think it has a bit more to go yet."