POP: Carding wools took a hit resulting in a 57c drop in the wool market.

Pop goes the wool market, at least for cardings | Elders

Carding wools took a 200c hit, resulting in a 57c drop in the wool market.

A RESOUNDING popping sound was heard in the wool auction rooms this week; perhaps it was the sound of a balloon bursting or perhaps the deflating of the cardings bubble.

By the end of a shortened selling week to accommodate the Australia Day public holiday the overall market had eased by 57c in local currency terms.

AWEX’s eastern market indicator closed down 57c on 1744c. AWEX’s northern market indicator closed down 56c on 1845c. The 17 micron indicator closed on 2684c, 18 micron 2345c, 19 micron 2101, 20 micron 1900c, 21 micron 1785c, 22 micron 1723c, and 28 micron 735c.

The carding segment however fell by more than 200c. After rising spectacularly since October/November last year in a near vertical line on the charts, the cardings indicator performed a neat half-pike and plunged back down again.

Nothing more sinister is at foot than a good old-fashioned slap down for a belligerent market segment that had got out of control.

Stories at the grower level of previously unheard of price returns for locks and crutchings, disbelief from the processing fraternity, increasing mill stocks and unfavourable currency movements all helped to bring about the fall but the ferocity and extent of this week’s fall in carding wools surprised even the most seasoned traders.

The bulk of the wool market was easier during the week following the trend of the previous week, but good quality lines were still sought after and prices not that far below the previous weeks levels, or in some case even higher.

So much of the offering at present is comprised of crossbred wools (some better prepared than others) that a large proportion of the offering is of little interest to buyers chasing good style bread and butter Merino wools for their processing.

The carbonising trade were obviously sitting on their hands waiting to see where the bottom would be as the cardings market fell and this meant that high VM skirtings, prems and the like found no compassion among the trade. But those skirtings with a lower VM content and therefore more suitable for worsted processing or combing had good support.

For a couple of weeks now the downstream processors have been asking why the greasy wool market was operating in such a crazy manner and now we have seen the reaction – for the cardings market at least.

In another week or so the bulk of the Chinese mills will start to close their production facilities down in preparation for the spring festival. Their attention will be focussed on making sure that those deliveries promised before the Chinese New Year are on track to be completed and then making arrangements to travel to their hometown in what has become the globe’s largest annual human migration.

However, with the changing demographics in China and increasing levels of affluence many younger Chinese are now using the annual holiday period to travel across the globe rather than the traditional visit to their hometown. This will no doubt be a boon to tourist industries around the world and help keep the global economy ticking along.

Things across the globe are looking quite a bit rosier than they were 12 months ago with many if not all, central banks looking to raise interest rates during the year. The period of ultra low rates has staved off a global recession, and if you ignore the newly formed mountains of government debt things look pretty good.

This bodes well for the Merino industry, as more cashed up consumers will be able to afford the increasingly expensive garments made from this fibre. There are still plenty of processors, garment makers and retailers coming to terms with the new price of Merino, but not as much angst as one would expect given the price change over the past two years.

This latest adjustment will muddy the waters a little as they wonder if it is going to turn into a full-blown trend reversal or not but on all of the current indicators that seems highly unlikely. A correction (and we had to have one) usually lasts three weeks, so we may still see a bit more adjustment, particularly as the Chinese mill orders are likely to be sporadic over the next three weeks. Then as early stage processing picks up again following the Chinese New Year a final burst for the season should see demand for greasy wool lift prices in March/April before the usual quiet period in June/July.

Superfine: The superfine indicators actually increased during the week with relatively few lots available. The first week of February (selling week 32) will be more or less the last opportunity for the trade to get their hands on quality superfine wools for the season so it would be surprising to see much change at this end of the market until after then.

Medium Merino: The broader edge of the merino also went up in US dollar terms for the week as demand in China increased at the expense of the 19-20 micron types. The weakening US dollar will play a part in Australian auction prices but in the scheme of things prices should remain around-about current levels.

Crossbreds: With another big fall this week crossbred wools are looking very cheap in comparison to Merino. However the end products are vastly different and only the best, well prepared crossbreds can be used in a blending situation. There is simply an oversupply at present and until someone turns on the demand tap the disparity will continue.

- Bruce McLeish is Elders’ northern zone wool manager. 

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