Wool market shrugs of negative downturn

Wool market shrugs of negative downturn


As expected the Australian wool market rebounded last week.


As expected the Australian wool market rebounded last week, shrugging off the negative feelings of the previous three weeks to eventually recover around half of those losses.

The Eastern Market Indicator (EMI) closed up 54 cents, 46 US cents and 44 euro cents with medium Merino fleece types leading the way. The 18.5-19.0-micron types added a solid 80 cents for the week, with some of the better style lots being quoted up to 100 cents dearer.

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Skirtings followed a similar pattern and crossbred wools basically added half a dollar. Cardings were positive as well, gaining 10-30 cents depending on type and selling centre.

With Fremantle only holding a one-day sale, and taking next week off, buyers were obliged to finish any order they started in the west to avoid holding wool over, which led to some frenetic bidding at times.

The market over the previous three weeks had talked itself into going down further than it needed to, as the sluggish demand from China in particular became all consuming. But it was clear the fundamentals of the market did not warrant such a big decline, thus the corresponding bounce as people took advantage of previous desperate sellers.

Once the amount of demand, at least short-term became apparent, many mills and exporters slammed the bag to avoid selling too much and leaving themselves exposed.

In this current tight market, going into a long or short position can be very expensive and damaging given the limited opportunities to turn a position around quickly. So, during the week prices were quickly adjusted to the new level and there was still some flow-on business happening later in the week, with the renewed confidence throughout the trade.

A market correction is sometimes justified or needed, as it was three or four weeks ago. However, in the new world order of short lead times, and small quantities of offerings, with no stockpile to access, traders and early stage production mills are much more comfortable when the market is moving upwards.

They tend to buy first and then sell onwards, rather than taking the risk of selling first.

During the past four years this has been a fail-safe methodology, in what has become a risk averse trading environment. Those who have been around a bit longer would have seen some very large short positions built up at certain times, when supply was plentiful and demand on the wane.

Demand for Merino wool may not be booming, but it is certainly present, although the composition is changing and some processors are able to adjust and some are not.

There is still a baseload of worsted fabric required to clothe those who choose to wear a suit, or are provided with a uniform for their workplace. Some of this fabric is being cheapened down by adding a polyester component, so the retail sector can still reach their desired price point per metre of fabric or finished garment.

Perhaps a pollution tax to protect the marine environment from the micro-fibre contamination also needs to be imposed to highlight the damage being done by the 'cheap' fibres, but that issue is being fought elsewhere.

The Chinese government is well aware of the slowing textile industry and as it often does around this time of year, has pulled the lever to provide a degree of stimulus.

Some industrial sectors in China have been encouraged to purchase their next round of uniform orders, which just by the sheer scale of employee numbers creates a surge in demand for worsted fabric.

This fabric will certainly contain a blend of wool and polyester, but will still be wool rich and concentrated in the 19.5 to 21.0-micron range.

Other manufacturers around the world are resisting the call from their clients to blend any synthetic fibres with their wool, preferring to spend time convincing the client of the merits of the fibre and working with them to find efficiencies in other areas, or creative ways to make the fabric lighter to save cost.

For some mills, the damage caused by the introduction of synthetic materials into their waste management systems and environmental stewardship philosophy, simply outweighs the benefits of selling a few thousand meters of cheap fabric.

Throughout the worsted fabric manufacturing scene there are difficult conversations taking place, and there are very few mills who have been able to match the sales activity of last year - which was admittedly a fairly high level around the world.

Even those at the very top of the pyramid have experienced a slow-down to some degree, however they have been in the game for a very long time and seen the cyclical nature of the wool industry evolve over decades or even centuries in some cases.

Perhaps now the Merino industry is actually breaking out of the cyclical price pattern and undergoing a more fundamental evolution.

For nigh on two centuries Australian Merino wool has been produced, processed and sold in the suit industry. With the current price pressure being experienced in that sector and the casualisation of the work environment, the suit is no longer the mainstream production destination for Merino wool.

A group of Australian growers have spent the past week touring around production facilities in Italy. Whilst it was enlightening to visit the mills and to acknowledge superfine Merino as a noble fibre, a visit to AWI in Milan provided a huge inspiration on how Merino wool is being marketed to a whole new segment of the population.

Price is not a major barrier in so many of these products, and it is simply a matter of education and spreading the message about Merino and the advantages of this natural, sustainable fibre to an increasingly ethical consumer.

So, whether from a Chinese stimulus perspective, or newly created demand for alternative products, or from a shortage of supply perspective, the price of greasy wool is unlikely to go down very much in the short term.

The story Wool market shrugs of negative downturn first appeared on Farm Online.



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