Short supply promising sign
THE wool market seemed to struggle against opposing forces last week. Some were calling for further correction while others were keen to secure supply and content to push prices higher.
Despite an offering of just under 50,000 bales, the looming Christmas recess and the gap in supply won the argument and prices closed higher.
The basket indicator rose by 7 cents across the week, but thanks to a weaker Australian dollar it only gained US1c and lost slightly in Euro terms.
Melbourne is providing more than half of the weekly national volume and running three-day sales while Sydney and Fremantle can only muster enough for a two-day week.
The market spluttered early but buyers re-entered the fray, chasing in particular the better spec wools in Sydney, which was again a designated superfine sale. To close out the week buyers remained active, with Chinese demand the driver.
So there seemed to be an overwhelming mood of optimism from China in contrast to mixed views from seven days ago. There had been plenty of buyers and processors in China saying the correction had further to run as current prices were still too high, cash was running short, the end of the year was approaching and a myriad of other excuses.
However, in a very short time many have jumped the fence. Now the collective view from China is much more optimistic and they are buying with almost gay abandon.
Other key markets such as Europe and India still remain cautious or reluctant to see higher prices at this point. Perhaps some of the European voices are trying to talk the market down or restore a position of leadership as the current processing activity in Europe does not reflect price pressure or a slowdown.
The Indian trade, which is steadily growing as a consumer of Merino thanks to some marketing campaigns linking with Bollywood stars, is struggling to keep up with current market movements. Often their price ideas or bids seem to be one week or more behind the current price level, which in the case of superfine Merino can be nearly $1 below.
As summer begins with Test cricket on the radio but with southern Australia experiencing unseasonal wet conditions it is difficult to find too many pessimists in the wool trade. With only limited selling remaining for 2017 and product moving freely in China, at least most participants are lining up on the side of firm to stronger prices.
The wool market has often surprised us in the past, and if we do encounter a speed bump it will upset a lot of people. To date there has been very little chatter about wool quota running low in the Chinese market with the exception of a few trying to use up their New Zealand quota that have not been in high demand this season.
Cash flow must be an issue with exporters, traders and processors needing 21 per cent more cash to fund the same turnover as last year. However, with careful juggling and keeping overdue payments to a minimum, no major problems have been encountered.
The dwindling grower-held stocks are another reason buyers are reluctant to stop.
The just-released AWTA stats for November indicate that Australia has produced 5 per cent more wool season to date compared to last year, yet AWEX figures show we have sold 9 per cent more than last season. This confirms that we are selling more than we are producing and we will not see a big influx of wool coming to the market in the new year.
Add to this the disproportionate increase in crossbred wools and Merino wool may become scarce in 2018.
If you have any questions send email to damien.whiteley @elders.com.au.