Global jitters shake market

Global jitters shake market

Wool
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Local wool prices eased last week on the back of another week of COVID-19, with differing infection results around the globe, and Australian Dollar gains. Bu...

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A strengthening Australian dollar and plenty of wool on offer resulted in a slight drop in prices at national auctions last week.

A strengthening Australian dollar and plenty of wool on offer resulted in a slight drop in prices at national auctions last week.

Local wool prices eased last week on the back of another week of COVID-19, with differing infection results around the globe, and Australian Dollar gains.

But, in both US Dollar and Euro terms, the market was unchanged.

Even a very small offering of only 22,000 bales nationally was not enough to spark a buying frenzy and the market contracted by 3.7 per cent, of which more than 3 per cent was attributable to the currency movement.

Despite this, buyers were reticent to go too hard on anything except the best style wools, and most major Merino fleece types fell by 60 to 80 cents per kilogram.

Cardings continued their downward drift, and crossbreds were also lower, but appear to be running out of room on the downside.

Until a significant recovery in the demand side of the equation occurs, the market will tenuously hang onto its current support levels.

In USD terms, the market rests almost exactly on the previous level it rebounded from in 2015.

Whether it can hold and steady at this level obviously depends more on demand than supply, as reducing auction volumes further would seemingly not have any effect on sentiment.

The wool industry has had a bit of an over-supply issue recently, despite lingering drought effects.

Demand had fallen away overnight, with the COVID-19 shutdown in China and then the subsequent shutdown in Europe, which reverberated back to Chinese processing mills - who were just reopening and getting back on track.

New Zealand slammed the door for everything in every industry - including wool - on Prime Minister Jacinta Ardern's orders, and Argentina (like most of South America) and South Africa closed everything down,

In Australia, things have continued (at a distance) and back-up plans have been put in place - with electronic auction systems also being dusted off and finessed. Growers were advised by brokers not to offer wool with unrealistic price expectations, and most have heeded the message and kept a fair bit of that in the shed. So, balance has been restored.

But it is a very long plank and the see-saw can tip quite violently, as we all know.

In the oil industry, it has taken time and a lot of effort to reduce supply.

Wool is not there just yet, with the focus still on demand reduction and many not noticing that supply has dropped significantly.

The European shudders are still causing ripples in the Chinese pond, but perhaps the waters will calm again next week.

Across Europe, factories are expected to start turning on the lights, issuing masks and gloves to the returning workers, and getting at least some things moving again.

If this is enough to provide a sense of confidence to Chinese early-stage wool processors, we may see the see-saw stay on an even plane - rather than tilting down.

Currently Chinese mills are more than a bit unsettled about where-to-from-here.

The promised, or expected, government stimulus is not flowing through to the textile industry yet, and - although banks have been told to be friendly - the cash-flow for mills who have been buying greasy wool, but not shipping many tops out, is getting tight.

There are no signs of significant stock build-ups, but production has been scaled back again in some cases until more orders arrive.

Garment mills are not yet getting clear signals from retailers, who have plenty of unsold stock that is clogging up the pipeline.

Cash is not flowing back down to the garment mills, creating concern for them and many are jumping onto government contracts to make face masks.

The spinner, topmaker and carboniser does not have the ability to make these medical items and this early stage sector of the pipeline is getting exceedingly edgy - with some delays and market claims emerging.

This puts pressure on exporters in Australia and leads to finicky auction demand.

The story Global jitters shake market first appeared on The Land.

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