Australian wool auction markets staged a significant rally in prices this week across all types and descriptions, backing up the good demand signals exhibited on the final sales day last week.
This strong and competitive market situation was supported by a much lighter volume of bales on offer, particularly strong indent orders from one of the larger Chinese operators and forward selling exporters keen to execute orders prior to the Chinese shutdown over their New Year period.
Buying interest from Europe and India continues to add valuable support to the market. The AUD:USD exchange rate continues to sit around 88 cents and traded in a relatively narrow band of around 60 points during the selling period. It appears these days, the stability of the exchange, rather than the rate of exchange, assists the wool markets more as far as confidence is concerned.
In what is considered a rare event, the market for every type on offer this week acted in concert, with prices concluding the series at levels 20 to 30acents clean/kg higher across the entire selection.
These rises virtually wiped out the losses of the previous sales week. Obviously the percentage gains were stronger at the lower priced end of the spectrum, indicative that the global wool users are currently keen to also source some quantity at the cheaper end of the raw material supply chain.
For what has seemingly become a trend over the past few weeks since the Christmas recess, the better Superfine Merino fleece sector of 18.5micron and finer has proven to be the most resilient, and price gains have occurred in consecutive weeks. The reduction in availability of these types is concerning the usual buyers of these wools as the likelihood of less strength and lower style becoming generally more prevalent in the Australian wool clip over the next 4 to 6 months is being realized.
A slight pull back was witnessed in the Merino fleece sector of wools broader than 19.0 micron on the final day, but these were minor in magnitude and predominantly restricted to the lower end types, as talk of difficulties of getting new sales into China and payment receipts slowing started to play on the local auction buyers’ thoughts.
With the high cost of stocking wool locally, buyers are reticent to carry too much inventory through the China New Year period, as quite often the payment schedules are put back or delayed 2 to 3 weeks, restricting the buyer’s ability to participate fully in the local market.
It is assumed that the next few weeks of selling will be somewhat affected by a general inactivity from China as they will be in holiday mode. The market and buying patterns of our major purchasers are signalling that demand is inherently strong, as does the strong presence of wool content in the latest fashion ranges released at trade fairs in Europe.
Whilst the next few weeks may see prices struggling to maintain their levels, the short to mid term outlook is reasonably positive, with some trade participants bullish in their forecasts.
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