Slight spike spurs sentiment for second half of wool selling season

Wool market shows encouraging signs on the back of a small price kick last week

Wool
SMALL STEPS: Given the low volumes of wool coming on to the market at present, demand may not need to jump significantly to start turning the outlook around for the second half of the season.

SMALL STEPS: Given the low volumes of wool coming on to the market at present, demand may not need to jump significantly to start turning the outlook around for the second half of the season.

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Low wool supplies and a small uptick in demand saw wool prices rise slightly last week for the first time in more than a month.

Aa

Re-opening seems to be the catch-cry of the moment - and the wool market followed suit last week, with a positive outing that led to prices finally rising again after seemingly being on the slide for a long time.

April 8 was the last time the market closed with higher weekly prices. Similar to that small (closing) increase of 14 cents a kilogram back in April, the market last week managed to close 9c/kg higher on the back of slightly better demand from Chinese processors.

In both US Dollar terms and the Euro, the increase was of similar magnitude and did not run to double figures in either currency.

There was a smattering of business, which was enough to awaken the buying fraternity and create a better tone in the room.

Filling a container with wool of a suitable, consistent quality still proved to be a challenge for many - with a huge price disparity evident between those types that met the specification and those that were outside the range, particularly on the yield front.

Despite this, there was a more optimistic buzz around the trade for a while as real orders flowed into the market, rather than buyers just scrounging for value or employing defensive buying tactics - as has been the case for the previous month.

Exporters and traders are searching their emails - and even checking that the fax machine is plugged in - for follow-up business. But there doesn't seem to be much happening in the short-term.

With an even smaller selection scheduled to go under the hammer this week, at only 21,000 bales, there may be just enough in the tin to keep the market moving sideways. But nobody is predicting a jump in prices in the short-term.

The world is being bombarded with economic data at present, as some countries emerge from lockdowns and others still struggle to contain the COVID-19 virus.

Data released from China on Friday last week highlights how slow the recovery process could be.

With the Chinese economy ahead of many countries on the recovery curve, a glimpse into the future - with a few annotations - is possible.

China's industrial economy bounced back strongly in April after the first quarterly contraction in history, according to a South China Morning Post (SCMP) report published online.

Retail and investment remain weak across the board, but monthly data was improved from March.

Weaker demand from abroad is affecting China's efforts to get its economy back to full-speed, according to the analysts at SCMP.

The wool industry had seen a similar effect a full month earlier, where the market looked set to surge ahead on the re-opening of China, only to falter and stumble as Chinese export customers went into lockdown in Europe and America.

Retail sales, a gauge of consumer spending in one of the wool industry's key markets, fell by 7.5 per cent compared to April 2019 - but was much improved from the 16 per cent fall seen in March.

Analysts had predicted a 6 per cent drop, so the figure was slightly below forecast, but does point to a recovery nonetheless.

With a lot of things making-up the retail basket, and woollen clothing tending to a discretionary purchase rather than a necessity, we are not out of the woods just yet.

But, fast forward a couple of months, and the rest of the world will be where China is on the recovery curve - hopefully.

By Mid-July, European and American consumers should be spending again and the mood lifting.

Those involved in the long production cycle for apparel are now slowly poking their heads above the parapet and asking for samples.

This will bring cheer to many in the industry as a sign of re-awakening demand, and provide a glimmer of hope that the back half of the season can be salvaged.

As has been mentioned many times, wool is still ultimately a seasonal product - with the majority of products being sold in the autumn-winter period. This means garments on the shelf in September for the northern hemisphere.

The train wreck of damage from the COVID-19 outbreak will be long and most expectations or hopes of a 'V' shaped recovery are now off-the-table.

Governments around the globe are asking their respective Reserve Bankers how much more they can give in the way of interest rate relief as a means of further stimulus.

Almost in every place the answer is there is 'nothing left to give', as interest rates are practically zero everywhere.

Stimulus is therefore left in the hands of government to dish-out, and then manage the ensuing budget deficits - no matter how unpalatable that may be for those with impending elections.

Most governments have pulled the trigger early, and hard, on the easy stimulus and done everything short of providing 'helicopter money'.

To get very cautious consumers spending again, so that business can rebound and rebuild some form of this, may still be necessary.

President Donald Trump is said to be considering a further stimulus bill in the US. But the wool market is eagerly awaiting the expected recovery stimulus measures following the annual National People's Congress in China, which starts on May 22.

A large volume of uniform orders may just be enough to bridge the gap on the demand side until further improvement in the COVID-19 recovery is made around the world.

With such a small volume of wool currently available, demand does not have to make a huge improvement to turn things around - as we saw with just a few orders having been sold last week.

There are already people starting to speculate on a wool price recovery based on the historically low prices, rather than genuine industry knowledge.

But add this speculative buying power to some real demand for next season's samples and new uniform orders, and next month could be a whole new ball game.

Aa

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