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AWI wool market review (27 October 2017)

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Demand for Australian Merino wool has gained further momentum with strong price gains across all Merino types at wool auctions this week. Unfortunately the same is not the case for our crossbred wools which faltered once more with prices diminishing on almost all of the offering. All carding wools continued the recent advancement and interest in these types appears insatiable at present with prices well over 1200ac on the indicators.

Whilst initially 5ac lower for the first half of the week, the AWEX EMI (eastern market indicator) surged strongly through to the close on the final day to post a healthy 10ac clean/kg rise for the week. The EMI closed at 1578ac/clean kg which is 247ac higher than at the same time last year.

A large proportion of the gains can be put down to the advantageous currency movements against the AUD. With all three of the major currencies used in wool trading depreciating by 1.8 to 2%, an equalising factor was in play, as most Merino types appreciated in AUD terms locally by similar amounts.

The market adjustments on Merino wool wiped out the forex advantage, but show the willingness of overseas manufacturers to keep supply up to their machines at the converted prices. It must be recognized though, that most of the manufacturing world considers Merino price levels to be “high”, particularly at the finest end of the clip. Only the carding wool sector prices outstripped any currency shift into the positive, but the carding market is largely the domain of the largest manufacturer and trader of these wools and it is assumed it would predominantly be using AUD for purchases.

The crossbred price worsens considerably as the double addition of local level loss and currency factors are combined. Global stocks mainly from outside of Australia remain the biggest inhibitor to any improving price scenario for crossbred wools. These wool types and descriptions are an important portion of the Australian wool clip and last season made up around 18% of our clip, although this is down from the high of approximately 21% of the clip six years ago in season 2011/12.

This week’s auctions featured some widely variable published results between centres. For super fine (less than 18.5 micron) Merino prices guides there are confusing disparities of between 50 to 100ac clean/kg between mainly the North and South levels. This area of the market is currently the most well sought after and it would seem strange if buyers of the same companies were using such differing prices between the centres.

In general the Super fine Merino types registered gains of up to 50ac clean/kg for the week, most of which came on the final day of selling. The 18.5 to 22 micron Merino wool descriptions sold 5 to 20ac clean/kg dearer. Although competition was steady and enquiry consistent from overseas throughout, in US terms the prices actually fell, showing how some manufacturers are hitting perceived price resistance.

Prompt and October shipment deadlines are fast approaching in the next few weeks, but the relatively larger volumes should see these outstanding orders easily catered for. Carding prices gained strongly throughout and a further 2.5% increase was recorded in general as prices moved up 30ac. Consecutive rises over the past two weeks has seen a cumulative yield of almost 5% of value added to the sector’s returns.

Conversely the crossbred selection on offer was 30ac cheaper and traded to very lacklustre interest from the trade. Over 47,000 bales are rostered to be sold in Australia next week. The trend is strong on Merino and weak on Crossbred and nothing seems to be in play presently to change those expectations.

Source: AWI

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