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AWI wool sales (6 February 2020) commentary

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Surprising sale results this week at the Australian wool auctions as almost all wool types and descriptions appreciated in value. Expectations were of a wool market that would be ravaged by the turmoil caused to the Chinese normal working environment by the growing Coronavirus outbreak. These thoughts were quickly extinguished though with strong European interest being met by a tenacious purchasing appetite from a large Chinese top maker.

The radical change to a more confident sentiment that became apparent at the end of last weeks selling continued into this week from the opening hour of selling onward throughout selling. In what should be a good indicator of the markets potential to stabilize and perhaps further improve, is that the two major influences on pricing this week were first stage processors. As these two entities accumulated quantity, it wasn’t long before the local trading houses took the affirmative lead that those two influential operators provided and upped their own buying rates accordingly.

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) gained 29ac or 1.9% this week to close at 1577ac clean/kg. This completely eliminated the losses of last week. The EMI in US dollars (USD) was similarly dearer and pushed 2.1% or 23usc higher to close the week at 1066usc clean/kg.

The market was given some stimulus by the USD v AUD foreign exchange (forex) rate trading under the 0.67 level earlier in the week. The AUD is normally included in an Asian region currency bundle and it was this basket that came under pressure against major currencies. It was mainly foreign investors that pulled their money out of those AUD investments upon fears that the China coronavirus will stifle growth and therefore potentially dampen investment returns. The Reserve Bank of Australia’s (RBA) decision to maintain interest rates helped push that rate back into the 0.67’s as the week progressed.

Merino fleece and skirting types finer than 18.5 micron gained a general 50 to 70ac for the week, but the sale lots with the better specifications gained upwards of 100ac or more. Conversely the lowest specs remained unchanged at best. The 18.5 micron and broader wools were a general 25 to 40ac dearer but once again made up by the better specifications being 65ac dearer and the lower edge just firm. In all cases it was the European top maker that attacked the better wools and forced others into setting higher limits. Crossbreds and cardings traded consistently stronger throughout and managed to be 10 to 20ac dearer by weeks end.

Consistent to the season long approach, grower resistance to price acceptance was still evident with over 10% of the original offering withdrawn from sale prior to auction and a subsequent 15% being passed in after failing to meet the vendors reserves.

Next week has around 43,000 bales scheduled for auction.

Source:AWI

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