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Australian wool discounted by buyer resistance to high prices

Sheep Central, September 28, 2018

AUSTRALIAN wool prices met stronger resistance from buyers this week, leading to general discounts of 50-90 cents a kilogram across all categories.

The AWEX Eastern Market Indicator fell 54 cents to 2013c/kg clean, the largest fall in the EMI since it lost 62 cents in July this year.

With buyers concerned about current price affordability, volumes and qualities available, brokers passed in 14.1 percent of the 32,985 bales offered, 2645 fewer than last week.

The discounting occurred despite the EMI in $US falling 39 cents to US1461c/kg. Australian Wool Innovation said this shift was well and truly to buyers’ advantage.

AWEX senior market analyst Lionel Plunkett said wool was sold in Melbourne in an unusual pattern this week — on Tuesday and Wednesday — due to a Friday public holiday celebrating the AFL Grand Final. This meant Melbourne opened proceedings, selling in isolation on Tuesday.

“The market opened with discounts from the opening lot.

“Prices continued to fall as the sale progressed, as buyers became increasingly selective with their purchases,” he said.

Sydney and Fremantle resumed sales on Wednesday and quickly realised the losses experienced in Melbourne, then further price reductions were felt in all three centres,” Mr Plunkett said.

“The Western region was the hardest hit, resulting in the western indicator falling by 74 cents for the day.

“Sydney recorded more losses on the final day, Fremantle however, managed to steady, even recording small price increases in selected microns,” he said.

“By the end of the series, prices had fallen by 50 to 90 cents when compared to the previous week, with the losses felt across all microns.”

Mr Plunkett said the skirting market suffered similar corrections to the fleece.

“Prices generally fell by 60 to 80 cents, wools carrying more than 4pc vegetable matter most affected by the falling market.”

Crossbred wools also lost ground for the week – generally 20-430 cents — but not to the same extent as their Merino cousins, he said.

“The oddment sector was the poorest performer for the week.

“A limited selection struggled to attract buyer support and prices were generally discounted by over 100 cents.”

Prices succumb to price resistance

Australian Wool Innovation’s weekly market report said wool auction prices finally succumbed this week to the price resistance that has been simmering for a fortnight.

“All wool types and descriptions on offer were adversely affected to varying degrees, but it was the carding sector that was hardest hit bearing in mind though that all wools broader than 18.5 micron are coming off the strongest spring levels seen.”

AWI said the lower EMI in $US terms was the lowest the indicator has been since the second week of May.

“Not only were the $US users advantaged, the Chinese Yuan equivalent indicator was 2.6pc lower, but it was those manufacturers using the Euro who extracted the most discount as that indicator was 3.15pc lower across all wools.”

AWI said the declining fortunes of the short term market are thought to have partly originated from local buyers here in Australia rather than wholly from overseas.

“The sentiment from off shore Chinese traders, agents, users and manufacturers was perhaps considered to be too negative, and therefore too much of a risk for the local buyers to keep backing the market speculatively.

“As such, a few of the largest local buyers appeared to simply step away from their normal purchasing behaviour and intensity,” AWI said.

“With such heavyweight buyers out of the major action, the inevitable cheaper market eventuated.”

AWI said European interest remains evident in the auction rooms and purchasing power is very strong on all better wools finer than 19 micron.

“Those European buyers surely must have enjoyed the lack of normal pressure being applied from the competition from other buying destinations, but additionally the exchange rate went their way.”

AWI said the offering in the designated superfine sale in Sydney suited the Italians in particular, as many clips of best top making and spinners wools were available.

“Of course, these Italian interests completely dominated the sale rooms on these types and their premium prices could not be matched or bettered.

“The question being posed for overseas mills as to what is the “right” price to pay has become a more urgent one to answer as each passing week sees no evidence of a surge in volume of wool becoming available, particularly Merino,” AWI said.

“Another key factor is declining quality within much of the selection.

“The clips from drought-affected zones have yields that are becoming increasingly harder to place into standard type contracts.”

AWI said with many users urgently needing raw material to run on their machines, the 6pc price reduction in $US terms over the past six weeks must surely see some of them ready or closer to executing some significant forward coverage.

AWI said some new orders will be necessary to stimulate activity for the substantially larger quantity of 42,546 bales being offered next week.

Click here to see this week’s AWEX Micron Price Guides.

Sources: AWEX, AWI. 

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