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Wool market report – AWI Commentary 24 May 2019

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Prices continued to fall at this week’s Australian wool auctions but signs of a slowing to the slide were witnessed by the close of selling. Global economic confidence has filtered through to the wool textile industry with the China – US tariff dispute and gloomy retail conditions in mainland China and Europe cited as the major contributing factors.

The ongoing impacts associated with the lifting of the South African wool import ban into China have largely been dealt with and accounted for, but still having a big effect on the market is the drought-affected wools the buyers are having to find a home for. The AWEX Eastern Market Indicator (EMI) depreciated a further 3.2 % or 60 ac to close at 1833 ac clean/kg representing a cumulative 6.2% fall in the past fortnight of sales.

The USD EMI suffered again more than the AUD levels as the AUD v USD forex rate lowered again by 0.55% to see the USD indicator 3.7% lower or 49usc to finish at 1260 usc clean/kg. The USD EMI has fallen 7.6% in the past two weeks and these new levels surely must have many mills interested in securing some guarantee of supply at the more advantageous prices available. Buyer focus this series was wholly focussed on the question of what price level to act?

It was basically a given pre sale that prices would again deteriorate, but a willingness to re-enter the market and cover off sold contracts by exporters also became apparent as these lower prices became a reality. The markets’ underlying strength was still being questioned as the large Chinese indents were absent from buyers lists once more, but as prices weakened most other buyers all became more steadfast and willing in their purchasing intent, taking advantage of the lack of the usually strong competition from these major buyers.

The week featured one of the highest pass-in rates in recent times of 28.2% nationally across all types and descriptions.

Some significant numbers were registered as wool growers resisted the lower prices being offered. In the Western Australian market 53.8% of the Merino fleece and 44.3% of the merino skirtings types failed to meet grower reserves. In Sydney 39.6% of the crossbred types also failed to sell and were subsequently passed in.

The only market sector which growers were happy to dispose of their product was in the oddment sector where relatively normal pass in rates occurred. In the Merino fleece and skirtings segment, the majority of the losses were registered on the first day. General falls of 40 to 60ac were commonplace with the better wools not as affected to these levels, whilst the poorest edge were more greatly affected than the quoted ranges.

Crossbred types were again almost completely neglected and savaged to large degrees of over 100ac in many cases. Cardings seemed to be finding a level, although 20 to 30ac falls were recorded on some types. The final day saw a much better market. Whilst some price drop offs still occurred, these were largely restricted to the big offering of drought affected hard to place wools. The tone in which the auction was conducted in was significantly improved and the better edge of the merino offering advanced back into positive territory by a small 10 to 15ac.

The Chinese top makers were a little keener and local traders and exporters appeared to use that, as well as a fear of supply and quality of that supply, as a lead to execute some of their short positions. Next week has a touch over 31,000 bales rostered for auction followed by a week where just 20,000 bales are currently scheduled. South Africa has just two selling weeks left prior to their annual two month break in sales so a supply squeeze is on the horizon, but an injection of greater confidence and stronger demand is required.

Source: AWI

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