Wool market shrugs off lingering coronavirus concerns

Wool market shrugs off lingering coronavirus concerns

The AWEX Eastern Market Indicator showed an increase of 13 cents a kilogram in local currency terms last week.

The AWEX Eastern Market Indicator showed an increase of 13 cents a kilogram in local currency terms last week.


Last week saw many other global markets stuttering and spluttering, but the wool market powered ahead with a fair degree of confidence.


Perhaps the wool market has dodged the proverbial bullet in regards to the coronavirus, or perhaps it is too early to tell, but the market appears to have shrugged off lingering concerns and moved on with life.

Last week saw many other global markets stuttering and spluttering, but the wool market powered ahead with a fair degree of confidence.

The AWEX Eastern Market Indicator showed an increase of 13 cents a kilogram in local currency terms, but thanks to a stronger US dollar, in that currency it notched a negative 3c/kg reading.

Cardings were flat and crossbred wools declined a little to bring about the negative summary.

However, the important Merino fleece segments were all positive and even the Kiwi's felt the need to bring their wools across the ditch to sell them in Melbourne on Tuesday.

Most major buyers were active and the market was solid right through until the final bell, if not still getting dearer when Fremantle finished late on Thursday, but nothing was extreme so nobody was getting torched.

The better spec wools moved ahead of the lower value lines, as they should.

Top makers and scourers with the capacity and knowledge to process the lower yielding, tender types gained the benefit of buying them more cheaply, as they should.

But those growers who produced the wool most desired, by most of the trade, got the best prices, as they should.

So, has the wool market returned to normal?

Not quite, but it is certainly on a fairly even keel and moving towards normality again.

Processing factories in China, at least in the main centres such as Zhangjiagang Free Trade Zone, restarted last week.

The number of workers available meant that most could only muster enough labour to run at 30 or 50 per cent of normal capacity.

But, as more workers return, and are cleared by local authorities to actually enter the factory rather than spend a couple of weeks locked in the dormitories, the mills will be able to ramp up production.

Some are reported to be working 12-hour shifts, rather than the usual 8-hour shifts, as one way to increase productivity.

In other instances, factories are reporting receiving phone calls from local authorities asking why they haven't restarted production yet, and in some cases, local authorities are offering to arrange transport via buses and trains for workers coming in from other areas.

This highlights the determination of the Chinese government to get the economy moving ahead after the imposed three-week lockdown.

This government-imposed closure of the world's largest factory has had severe implications for many supply chains around the world, and the ramifications are only just beginning to surface.

Companies like Apple, who last week came out with a sales warning saying it doesn't expect to meet earlier revenue targets, as they expect to be hit by both supply constraints and lack of demand due to the impact of the coronavirus.

Apple's revelation sent the investment community heading for safety and 'risk off', so the US dollar climbed whilst currencies perceived as risky or more intimately tied to China, like the Australian dollar and the euro, fell.

This is advantageous for Australian exporters in the short term, as we saw with higher local currency prices last week, but the reasons causing the lower Australian dollar are not good in the longer term.

Similarly, in Europe the plummeting value of the common currency is playing havoc on importers, giving exporters a temporary leg-up, but eroding confidence in the longer term.

Whilst there are still more infections and deaths from the virus in China and some elsewhere around the globe, and perhaps a longer incubation period now as well, the industrial world is trying to get back on its feet.

As mentioned, the wool industry in Australia, and by default New Zealand, South Africa and Argentina, appears to have come through relatively unscathed.

Thanks in part to the growing fraternity withdrawing some of the supply, the increased appetite of the European trade, and the long-term view of Chinese based traders, the wool market has barely registered any disruption from the coronavirus or Covid19 as it is now known.

Early fears of cash flow issues for exporters and traders have been managed thus far - no doubt with some very fancy footwork by the bean counter brigade.

Getting the goods moving again is now the challenge for the industry.

Already the transit time for greasy wool from Australia to China has blown out from the usual 21 days to a full month now.

Getting space on a vessel out of China for tops, yarn or fabric requires a lot of talking, cajoling and perhaps a little luck.

Shipping companies have seen their bottom lines decimated in recent years by all the one-way traffic and competition, so those remaining companies are already beginning to ration services and no doubt ramp up prices to restore their margins.

This will increase financing pressure as someone always has to fund the goods while they are in transit.

Luckily, the low-interest rate environment looks likely to persist for some time yet.

But, the delays in arrival will stretch friendships and business relationships.

We can expect to see many sales managers packing their suitcases and doing the rounds of clients - when the travel bans are lifted.

Luckily for them, Merino wool garments are light to pack, do not crease easily and can be worn on up to 100 consecutive days without odour problems.

The story Wool market shrugs off lingering coronavirus concerns first appeared on Farm Online.


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