Banking on easing backfires in surge
THERE were 38,000 bales rostered for sale in all three centers this week and the market opened with a bang across all micron categories.
The Eastern Market Indicator has reached new highs in both local and US currency terms and crossbred types have surged higher.
Last week we were unsure how the market would open after the recess with many influencing factors are at play. Hindsight is a wonderful thing, and it has become clear China and India were exposed with very low stocks and have had to meet the market.
Australian exporters tried to tell the major Indian processors the market wouldn’t be cheaper but they were banking on the opening sale being soft. The processors made the decision to withhold indent orders for the first week, which meant they had to double their orders in a relatively small offering this week. This is what has put the fire under this market.
I’ve touched on how indent orders work before but in a nutshell they are quantitybased orders. For example, someone wanting to buy three containers of a 20-micron type for the week can simply give instruct buyers to pay market rate. If the market keeps rising, their limits rise and away we go. Throw an active China into the mix and there’s not enough wool to go around.
Word out of China is they have followed the market up so after Wednesday’s strong close new business was done at the higher level, pointing to some sustainability at least for the immediate term.
The third dominant player, Italy and Europe in general, is reportedly enjoying improved market conditions for yarn and fabric sales. This is another very good sign, particularly for Tasmanian quality.
The only category to buck the trend is cardings. They were cheaper last week and unchanged this week.
However, historically they are still at very good levels.
To the prices: 18 micron closed on Wednesday at 2165c clean, 21 micron at 1654c and 28 micron at 855c – a staggering 10 per cent gain for the category in less than two weeks.
We are seeing a lot of forward activity for 12 months out as growers lock in a portion at good money. Even factoring in a relatively large discount to the spot market the forward money is very attractive compared to the long term average.
There are only 37,000 bales rostered for sale next week over two days.
Email questions to rcalvert @robertsltd.com.au.