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AWI wool market review – 22 February 2019

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Australian Wool auction sales sold to very intense Chinese interest this week and healthy gains were recorded across the entire offering. Demand for the fine (19 to 21micron) Merino and fine crossbred (26 to 28 micron) was at the forefront of buyer activity, with price levels within this area rising by upwards of 4.2% on the merino and 6.5% on the crossbreds.

All other wools on offer also enjoyed some very good price hikes. The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) advanced 59ac for the week to 2027ac clean/kg, which is a 3% gain. In US dollars (USD) terms, the EMI performed even better and appreciated by 51usc or 3.62% to close at 1452usc clean/kg. It was a mixed foreign exchange (forex) rate week as the USD acted independent to other major currencies and was mostly weaker against the AUD. At one stage through the week the AUD v USD rate was well into the 0.72’s.

The Australian wool market was influenced to some degree by the Chinese decision to place an immediate ban of imports of South African (RSA) wool into China due to a FMD (foot and mouth disease) outbreak. This weeks’ RSA auction was subsequently abandoned as the trade interests over there sought to negotiate a better outcome. Whilst the price gains that this weeks’ Australian wool growers had was welcome, it can sometimes leave a bit of a sour feeling if it is to the detriment of fellow wool growers.

Prior to the China import ban of South African wool being announced, new business was freely available at decent levels so a dearer market was widely expected anyway. The RSA ban probably just exacerbated the magnitude of the impending rises that were predicted and eventuated. As is prone to happen more often than not, the market price overshoots levels where comfortable prompt trade can be undertaken. The industry in RSA has reportedly decided to forge on next week and hold auctions again. The RSA auction will be double the normal volume to accommodate the growers that were unable to cash in this week.

Here in Australia we have seen over 20% or 8,000 bales more in our national offering than what was expected just a few days ago. Of most interest (and perhaps price indication) will be to see if the Chinese manufacturers and Chinese traders participate at the RSA auction. It was a tumultuous trading week but of quite some significance here in Australia, as the EMI surged through the 2000ac barrier once more. This is the first time since the 2nd week in October 2018 that this level was breached. The first day (Tuesday) of selling in Melbourne was witness to a feat rarely seen whereby a single buyer purchased half of the merino fleece on offer. On Wednesday, AWEX reported that the Western Australian 21 and 22 micron Merino price guides hit record prices of 2363ac and 2333ac respectively and 28 and 30 micron also hit new all time highs.

The market did back off quite sharply yesterday (Thursday) in Melbourne and Fremantle. Most microns were being quoted 35ac lower in the East and in WA 50 to 60ac lower by the close, taking quite a lot of gloss of the newly established gains. The majority of the loss was due to the lower and harder to place specified lots which were up to 80ac cheaper by the close. Next week the larger than expected offering of just under 50,000 bales will surely test the resolve of the market. Chinese interests drove the market up early, but their slowing spooked the market late in the week, so all eyes will be focussed upon the actions of the China indents for initial market direction.

Source: AWI

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