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Australian Wool Sales (24 October 2019) – AWI Commentary

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Australian wool auctions produced positive price movements across the entire offering this week. All types and descriptions were well sought, despite the much stronger AUD against the USD (+ 0.85%).

Price results were all to the sellers favour amidst a more upbeat auction scene which is now seemingly lifting out of the gloom that has existed during the first quarter of this season. The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) ended the week at 1545ac clean/kg which was a 28ac jump or 1.9% With the USD weakening against the AUD, the USD EMI was far more effected and bounced 2.7% or 28usc higher.

That indicator closed at the 1057usc clean/kg level. The global economy continues to try and resolve itself, but most signals are now swinging to the more positive of outcomes. One thing that is out of politicians hands that will help stimulate the global wool chain is strong retail figures. Most trade participants are hopeful that the early autumn sales produce the expectations that consumers are renewing their spending, particularly for the discretionary luxury spend area of retail that wool sits in.

Australian trading houses dominated the purchasing activity this week, but significantly the largest Chinese top makers upped their ante to participate far more strongly than they have been for the past month or so. Perhaps, and hopefully, this is indicative that some of the back log is clearing at the top to spinning stage where cash flows have been restricted due to delays in the uptake of wool top contracts. The auction rooms again operated in a controlled manner. The pattern of very large rises and falls has seemingly gone for now, as this was the third consecutive week of relatively sedate price movements. US prices rose and whilst overseas buying did back off somewhat, there was still ample business to see the market continue to climb against potential road blocks such as the stronger forex.

This season has seen the general re-emergence of a very influential price protection tool for wool growers – the use of the passed in mechanism. This has helped maintain the market rates at acceptable levels but the growing stockpile must be continuously monitored. If not openly measured and identified, this stockpile may inevitably become problematical for the industry. At present though, retention by growers of some of their wool is enabling the supply chain further up to rid themselves of stocks without having the added financial burden of having to finance potentially speculative only new buying of greasy wool.

This current situation will help cash flows to return to the first stage manufacturing sector. In the Merino fleece sector, general gains of 20 to 40ac were recorded. Above and beyond these gains were the better 19 micron and finer types which received the largest rises, which equated to 70 to 85ac above last week. All other sectors gained 15 to 25ac. The strong gains that Fremantle extracted at the end of selling this week points to maybe a market trend buster developing.

Next week offering volume of nearly 40,000 bales would normally have buyers expecting a price retreat as the relatively larger bale numbers available would ease purchasing pressure and buyers would become more selective. Levels in the West though closed 10 to 20ac above the eastern markets which has usually been a far better indicator of current sentiment than the immediate/short term supply waves.

Source: AWI

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