Global shutdown puts press on wool sales

Global shutdown puts press on wool sales

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Wool buyers claim the real problem is the rest of the world shutting down.

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CHINA is no longer considered the problem as COVID-19 wreaks havoc on Western Australia's wool industry.

With the global number of COVID-19 cases surging past 1.2 million last week, the rest of the world shutting down has become the problem, wool buyers claim.

The immediate outlook for the wool industry appears grim - national industry turnover from live wool auctions last week was down by $46.82 million to just 37 per cent of what it was 10 weeks ago before the COVID-19 crisis started, according to Australian Wool Exchange (AWEX) statistics.

The demeanour of wool buyers was sombre as they left the Western Wool Centre (WWC) after last week's trading in which finer micron price guides were smashed by up to 227 cents per kilogram clean and mid-micron guides for staple WA wool types plunged 180 to 191c/kg.

Tumbling prices meant little to buyers when orders to fill have been put on hold.

The resilience that had surprised many woolgrowers, brokers and buyers over previous weeks, disappeared as the WWC market took its lead on both trading days from Melbourne and Sydney wool markets.

The benchmark Eastern Market Indicator (EMI) tumbled 155c/kg for the week - its biggest percentage loss since May 2003, AWEX said.

After national and Chinese indent buyers had picked through small 9431 and 22,286-bale offerings in Sydney and Melbourne - trading three hours ahead of the WWC for the last time until daylight saving resumes there in October - they had little appetite or perhaps finance left for 5996 bales on offer at the WWC.

Local traders, Fremantle Wool Trading and Westcoast Wool & Livestock, finished first and third on the WWC buyers list for Tuesday last week - the day most damage was wrought on wool prices.

On Wednesday, selective bargain hunting by Chinese indent and national trader buyers saw Fremantle Wool bumped to third and Westcoast down to fifth on the list.

Within a week, demand for WA wool appeared to have dried up, despite New Zealand and South Africa suspending wool auctions because of the risk of spreading COVID-19, leaving Australia as the remaining bulk source of Merino wool with auctions still operating.

"(The problem) is not China, it's the rest of the world," said Darren Calder, who buys for PJ Morris Exports, the biggest local trader into China and who is normally near the top of the WWC buyers list, but was noticeably absent from the top three spots on both days last week.

His comment was backed up by Dave Cox, veteran WWC buyer for Tianyu Wool, the world's largest early stage processor and wool top maker.

As Tianyu's WA buyer, Mr Cox also regularly vies for top spot on the buyers' list - he was missing from the list on Tuesday but back on top of it on Wednesday last week.

"China's OK now, it's back in production," Mr Cox said.

"It's all the other countries we don't have access to, like India, Italy, Korea and Japan and all the countries that China can't sell its products into - that's the concern."

India and Italy are among a growing list of countries to have closed borders and wool buyers have said they cannot get Australian wool into either country now.

Japan and South Korea have announced tighter restrictions on entry, making trade more difficult and uncertain for the immediate future.

India, Italy and South Korea are Australia's next three biggest greasy wool customers after China.

Between them, pre COVID-19, they were taking 16 per cent of the national clip.

Greasy wool exports are only part of the picture.

China does early stage processing of almost all of WA's and the rest of Australia's wool, then on-sells some to second-stage processors or as wool top to manufacturers in countries such as Japan.

Closed or restricted borders and industry and commerce shutdowns as COVID-19 containment measures continue to roll out around the world, plus uncertainty over how long disruption to normal life and trade will continue affecting availability and cost of credit, is said by those in contact with China to be limiting ability to on-sell processed wool.

But the biggest damper on demand, WWC buyers pointed out, is the virtual shut down of traditional bricks-and-mortar retailing around the world because of the pandemic.

Wool garment and fabric manufacturers are relying mainly on online sales to carry their businesses forward for an indefinite period.

Factory showrooms are deserted.

Domestic sales of finished wool product account for about half of Chinese woollen mills' production, but China, along with the rest of the northern hemisphere, is into the second month of spring on the way to summer.

Seasonal demand for wool has diminished in China, irrespective of the number of new COVID-19 cases tailing off there and life slowly returning to normal.

It is the exponential growth of new cases elsewhere around the world that is hitting demand for wool hard.

For example, the United States normally imports about a quarter of China's finished wool product, but border entry is restricted and the country is in lockdown as it struggles with the world's largest number of confirmed COVID-19 cases and tries to prevent a truly frightening death toll.

There is also a distinct possibility rising anti-China sentiment in the US generated by the spread of COVID-19 could further affect sales of any goods imported from China.

Last month US President Donald Trump referred to COVID-19 as the "Chinese virus" and this month upped the ante by declaring China had not disclosed full details of the virus early enough to prevent the global pandemic.

WWC wool buyers last week acknowledged a return to relatively normal operation this month for China's wool processors and garment manufacturers will result in significantly less demand for WA wool than there was before the world became aware of the crisis in Wuhan in January.

Mr Calder pointed out that by now China's wool processors and manufacturers had replenished supply pipelines - the restocking perhaps a reason for wool's resilience until last week.

But those pipelines and greasy wool stockpiles have been replenished on the basis of reduced demand.

They were depleted by the cumulative disruptions to supply of firstly the Chinese new year holiday, then a cyber attack that shut down Australia's live auction selling system, followed by COVID-19 in quick succession.

A comparison of WWC week 30 sale results - the week beginning January 23 - before the start of the Chinese new year holidays and the pandemic - and last week's week 40 results showed the extent of difference 10 weeks can make to a new normal.

In week 30 the Western Indicator (WI) ended at 1685c/kg, the price spread across 18-21 micron guides was 1889c/kg to 1759c/kg, with 11,714 bales offered and 9540 sold for a passed-in rate of 18.8 per cent.

Prior to the week 30 sales 13.8pc of the listed offering was withdrawn and 7pc of what went under the hammer was reoffered, having been put up for auction previously.

Last week the WI finished at 1353c/kg, the price spread across the 18-21 micron guides was 1508c/kg to 1428c/kg, with 5996 bales offered and 3094 sold for a passed-in rate of 48.4pc.

Prior to the sales 25.3pc of the listed offering was withdrawn and the reoffered rate had doubled to 14pc.

Perhaps the starkest contrast to put what has happened to the wool industry into context is that nationally, in week 30, turnover from live wool auctions was $75.15m, most of which flowed back to woolgrowers.

Last week, national wool auctions turnover was down to $28.33m and expected to sink further.

But there is one thing brokers and WA woolgrowers could do that might help put a floor under the local market, some buyers have pointed out.

They claim woolgrowers and brokers should leave wool lots that have been put up for auction and rejected once, back in the shed and leave them there until the wool market returns to normal.

While growers are entitled to reoffer passed-in lots a fortnight later, the volume of reoffered wool at the WWC was driving critical passed-in rates higher than they need be and promoting further pessimism, the buyers claimed.

On the second WWC sale day last week - brought forward to Wednesday - almost one in every five bales put up in the small 2064-bale fleece sale was reoffered.

That is, buyers had previously inspected the wool and determined from technical specification, feel or appearance they did not want it and, through the auction system, were not prepared to pay the price the seller wanted.

Putting it back up for auction a fortnight later with minimal change to the reserve price could, in some cases, block new wool that might sell from being offered, the buyers claimed.

Exceptional circumstances sometimes required exceptional constraint, they claimed.

At this stage, the WWC is set to offer 8648 bales this week, 2652 more than actually went under the hammer last week.

The national offering, at this stage, is set to grow by 6503 bales to 44,216.

For next week only, the WWC and Melbourne and Sydney centres will revert to selling on Wednesday and Thursday, to allow for the Easter Monday public holiday.

As reported in Farm Weekly, the week 42 sales next week were not originally included in the annual wool selling program but were recently added at wool buyers' request.

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