Stronger Aust dollar weighed on local wool market this week

YarnsandFibers News Bureau 2017-02-20 13:00:00 – Sdyney

Wool prices strengthen despite rise in Australian dollar due to which for the past week the overall market rose by US16c. Stronger Australian dollar weighed on the local wool market this week. In Euro terms the market was also much stronger with a rise of 21 Euro cents for the week. Australian producers saw a relatively gentle movement of only plus-3c with superfine Merino continuing to lead the way. Further with buyers continuing to target the better tested lots, the 18 micron and finer rose by as much as 30c.

Medium Merino fleece wools were relatively abundant and this caused prices to ease slightly with buyers able to pick and choose their purchases. Crossbred wools moved into positive territory again as did the carding sector.

AWEX’s northern market indicator closed up 3c on 1521c. The 17 micron indicator closed on 2089c, 18 micron 2008c, 19 micron 1789c, 20 micron 1541c, 21 micron 1436c, 22c micron 1376, 28 micron 685c, and 30 micron 543c.

Carding wools have become the first segment of the wool market to reach the same level in US dollar terms as the last peak of 2011. Carding wools have just reached that peak, which means that customers overseas have not paid this much for locks and crutchings in the past decade. Whether this is a peak or just a point on the graph becomes an interesting topic of discussion.

Certainly the seasonal demand for cardings is still increasing, and buyer appetites do not usually begin to wane until after Easter. However, given the current high price levels, some say extreme, there is increasing chatter about price resistance and substitution of alternative cheaper fibres taking place.

On the other hand Cashmere prices are just beginning to jump upwards as buyers and processors return after the Chinese New Year and scramble to secure available supplies. So an increasing Cashmere price may actually drag the wool price with it, if the market deems wool to belong in the elite fibre category rather than among the commodity fibres like cotton and synthetic – although these fibres are also rising slowly.

Despite the probable repositioning of Merino, not all wool, but just the best apparel fibre, a healthy expanding global economy is paramount in order to maintain the upward trend. According to a recent report by ANZ economists Tom Kenny and Giulia Lavinia Specchia a synchronised global upswing is underway. They point out that there has been a notable improvement occurring in emerging markets across Asia and also above trend momentum in all major advanced economies.

Global industrial production is currently above trend, according to the report illustrated by recent readings of PMI readings for manufacturing and services hitting fresh multi-year highs in early 2017. While Chinese trade data for January – seen as a barometer of global trade given the sheer size of the Chinese economy – is also topping expectations. It all adds to the belief according to ANZ that the global economy is on the mend after a patchy performance in recent years.

If indeed the above positive viewpoint does play out, it may help alleviate some of the fear building along the production pipeline concerning the current high price of wool. In the major wool markets of China and Europe processors are talking about the fact that fabric and garment prices are yet to catch up to the increases of raw material. While those who have been buying greasy or wooltop and selling it on to customers further along the chain are satisfied, and in most cases they have been able to extract a healthy margin, those at the end of the pipeline are less comfortable.

In many cases the fabric or garment price was fixed late last year, or at least a portion of it, and there are some difficult discussions taking place about who wears the price increase. It will not be until the new season (July onwards) that a new round of price discussions takes place again for products to be sold in the autumn/winter 2018-19 season. It is expected that many customers will then look for ways to reduce the cost of their product, either by increasing the micron, or by adding cheaper fibres in blends. This may be the trigger to reduce wool prices, or it may mean that the consumer needs to adjust their price point for garments made from the best Merino fibre.

A brighter picture for 28-30 micron wools is beginning to emerge. The demand needs to flow along the processing pipeline in order to consolidate the trend, and clear the stock, but with less greasy wool of this type available over coming months, there is a chance that a price recovery may be underway.

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