As multiple issues play out in China, demand picks up in the Northern Hemisphere

Europe leads the way for wool

Sheep
SUMMER DAYS: Wool values are predicted to hold up well from next month and through the summer.

SUMMER DAYS: Wool values are predicted to hold up well from next month and through the summer.

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It appears the November to January period will be a positive time for the wool market.

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The wool market in Australia fared better than expected last week.

Prices for Merino fleece increased across the board, although a stronger local currency somewhat muted grower returns.

Lower crossbred levels and a drop in returns for carding wools also affected the overall Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI).

It showed a negligible increase of two cents a kilogram, but increased by US11c/kg and 13c/kg in Euro.

Certified sustainable or non-mulesed wools with the correct specifications again sold very well, as did those lots that met the traditional Italian mill requirements.

The Europe textile trade continues its recovery, and it is leading the way from a demand point of view as China swelters in the heat which is obviously affecting not only mill processing capacity, but also retail activity.

Traditionally, the week-long national holiday period in China during the first week of October is an active period for shopping across the nation.

But as the temperature hovers around 30°C, it has been difficult to entice too many consumers to buy woollen garments for winter.

Consequently, traders and processors in China are being very cautious about buying further greasy wool stocks at present.

They have some in the pipeline already - and on the water.

But with the processing mills enduring a forced shutdown to conserve electricity, their appetite for further stock is certainly restricted right now.

Some mills have been entirely without power since they returned to work on Thursday.

Others have rooftop solar panels that are allowing them to operate during daylight hours at least.

Still others have enough "green" credentials to get a reasonable allocation of energy from the grid, thus allowing them to operate.

All the ins-and-outs will take time to argue through with the local authorities and power providers.

But within a couple of weeks, they should be able to sort out arrangements and allow the majority of mills to operate consistently - even if this is only on a four-day week instead of the usual five or six day week.

The other big elephant in the room is the Evergrande property group and its pending demise.

This is an issue, but hopefully not one that is going to cause a dramatic crash in property prices and, therefore, consumer confidence.

It is still casting a shadow across China.

To date, the government appears to be managing the landing and has issued instructions for authorities to safeguard domestic investors and property owners from harm.

International bond holders may fare less well.

But they are less of a priority for the Chinese government at this stage than the average mum-and-dad investors, who have put their life savings - plus more - in apartments which may or may not be built.

The Chinese HSBC Services PMI measures, via a survey, what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices.

It has rebounded in September to a level of 53.4, which is significantly up from the August level of 46.7 - which was indicating a rather severe contraction as COVID-19 lockdowns affected much of southern China.

So, while the media headlines trumpet energy shortages and Evergrande collapse, perhaps the real Chinese economy is climbing back up again - and consumer activity will do the same.

The very important "Singles Day" on November 11 is only a month away, and the Chinese retail fraternity will be pinning its hopes on a big splurge then.

If that is the case, we should see the usual wool market pattern re-emerge - just a month later than usual.

Typically, we expect to see the market in Australia bottom out in late September - with week 13 of auction sales often being the low point.

As things are panning out, we could run a month late.

Although there is not a lot of downside expected in the short-term, we would expect things to start picking up more strongly in November.

Chinese greasy wool quota will not be an issue this year as it has been in the past, and the shipping industry is in such turmoil that nobody is really going to worry about a single holiday week shutdown to plan shipping around.

So, the November, December and January period should be a fairly positive time for the wool market.

Looking outside the auction room at other fibres, and cotton continues to boil away.

Similar to wool, there are reportedly plenty of stocks in China.

But other countries are bustling to get their share - and driving prices to an 11-year high.

Not since the "silliness" of 2011, when everyday investors in China took to gambling on the cotton futures market, have we seen higher cotton prices.

It will also now cost you considerably more to carpet your house using nylon, rather than wool, at present.

And with oil prices on a steady upwards trend, prices for synthetic fibres in general will not be coming down anytime soon.

This backdrop makes it very difficult to see wool prices come down either.

While it doesn't guarantee the market will also go up, it does provide a good support for current values.

Europe is on tenderhooks about the oil and gas price trend at present, and several nations are feeling the strain of shortages.

OPEC does not appear to be in any hurry to increase production to ease the situation.

But the rugged horse-riding guy from the east has indicated he may be able to help.

Exactly what strings are attached remain to be seen.

But it will be something to watch with interest as temperatures fall - and the need for an extra jumper or blanket increases.

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