NEW life was briefly breathed into the forward wool market this week after the first positive series of auctions for the season.
A 40-cent jump on Tuesday at auction saw bidding levels rise into the Spring and early Summer, enabling growers to take some hedge cover with the 19 micron indice trading over the 1000-cent mark and the 21 micron indice trading at a premium to cash.
The rally, off the back of export sales, although much welcomed, was brief, as the market gave back half of the gains Wednesday and bids on the forwards retreated in sympathy.
The impact on demand of the pandemic still hangs over the market. Exports were down to all countries — China 13 percent, Korea 35pc, Italy, CZ, Germany, Thailand, all 25pc — in the 2019/2020 season.
With China’s domestic demand improving, particularly in online sales, its dominance in market share has risen, while other major markets stay stagnant. China has increased overall share to around 90pc in June and July while India, Italy and Korea have halved their import volumes.
Where to from here? Clearance rates improved, with the passed-in rate down to 3pc Tuesday and 8pc Wednesday. Still, the build in the domestic stocks will limit the upside of potential rallies.
Fundamentally, the market should be looking for a base to come off. Both key micron indices — 19 and 21 micron — are below their long-term averages. On a percentile basis, 19 micron is sitting at 43pc and 21 micron is at 56pc, indicating the broader wools may be more vulnerable to further downside. From a competing natural fibre viewpoint, we have seen wool move from a ratio of almost 9 to 1 in February 2018, to 4.5 times cotton this week. Cotton has remained relative stable throughout August and September.
Short-term volatility remains the most likely scenario as we move into the spring supply. Any price rallies should be seen as opportunities for growers to apply some hedges. Exporters will likely look to keep tightly balanced positions and look to lay off risk where possible.
Trade levels ahead of next week’s auctions will be dependent on any uptick in offshore demand. Interest remains around 20 to 30 cents under cash.
September 19 micron 1015 cents 5 tonnes
October 19 micron 975/1010 cents 12.5 tonnes
October 21 micron 920 cents 5 tonnes
November 19 micron 980/1000 cents 16 tonnes
TOTAL 38.5 tonnes
Indicative trading levels next week
19 micron 21 micron
Sept/Oct 990 cents 870 cents
Nov/Dec 990 cents 870 cents
Jan/Feb 950 cents 840 cents
Mar/April 940 cents 820 cents
May/June 940 cents 820 cents