AUSTRALIA’S wool market could be negatively impacted for months by China’s spreading coronavirus outbreak, with the extension of the country’s civil and business lockdown.
Sydney wool auctions reportedly opened 40-70 cents cheaper this morning with many lots passed in as buyer confidence took a hit after the extension of the country’s Chinese New Year holiday.
In Melbourne, finer Merino wools came off 90-100 cents/kg clean, with broader microns 25-76c//kg down. Crossbred wool of all microns dropped 50c/kg clean. Up to 75 percent of the first lots offered were passed in, but this steadied to about 50pc over the first hour and about 38pc for the first two hours of selling.
In a letter to the Australian wool industry on January 21, chair of the influential Nanjing Wool Market Yang Xiaoxiong said the coronavirus outbreak may have a “worse impact on China’s economy”.
“Please remind Australian suppliers not to travel to China recently and take good care of themselves if come to China,” Madame Wang said.
Freight forwarding and third party logistics company BTi Logistics yesterday advised Australian wool industry clients that Chinese officials had announced an extended holiday for the Chinese New Year in the hope of containing the spread of the deadly viral disease.
“As the coronavirus death toll rises to at least 80, with more than 2700 cases confirmed worldwide, China is on lockdown, with nearly 60 million people affected by partial or full lockdowns.
“Lunar New Year/Spring Festival holiday has been extended to the 2nd of February 2020, originally from 30th January 2020 across China, while Shanghai will remain closed until 9th February 2020,” the company advice said.
“This may affect shipments departing, arriving or just crossing by China.”
Australia’s Foreign Minister Marise Payne today advised travellers to reconsider their need to travel to China overall and not to travel to Hubei Province, whose capital city Wuhan is the outbreak’s epicentre. The travel advice said Chinese authorities have restricted travel for parts of the country and may extend these restrictions at short notice. Travellers may be quarantined, due to their health condition or previous location.
Chinese authorities today confirmed there have been 131 deaths and almost 5500 coronavirus cases. The virus has spread to at least 13 other countries and regions, including the United States, Canada and Australia, with more than 70 confirmed cases. However, the World Health Organization has decided it is too early to declare the outbreak as a global emergency.
Uncertainty around wool import and finance impacts
Techwool Trading export trade manager Evan Croake said many in the trade have memories of the impact SARS (Severe Acute Respiratory Syndrome) had on markets in 2003.
Despite improving with the clearing of the Reserve Price Scheme stockpile, Australian wool prices dropped after the six-month long SARS outbreak, which spread to North America, South America, Europe and Asia before being halted.
“We are seeing an extended holiday in China that’s flowing through all sectors, through the banks and everything, so the Chinese New Year has been extended and as a result it is going to add a lot of uncertainty into the market,” Mr Croake said.
“At this stage, whilst it looks likely that most people will return to work on the 9th of February, it is still unknown.
“And it is still unknown whether there are going to be more delays,” he said.
“We are going to see all of our clients are going to take an exceptionally cautious approach because no-one sure when they are going to be able to actually import the wool again.
“That’s the issue, it flows through all areas.”
Mr Croake said over Chinese New Year there are normal delays at customs because of the associated holiday.
“So we are going to have continued delays getting wool into China and continued delays getting funding out of China, in terms of the banks and everything are going to be on hold.
“What it means for the market, we have to let it play out,” he said.
“At this stage, no-one knows, but it will definitely have a negative impact tomorrow (today), there is no doubt about that.
“I think we will see a reduction in the amount of mills in China that are happy to continue to buy through this period; a lot of them are going to take more of a wait-and-see approach,” Mr Croake said.
“So naturally when you’ve got 70-odd percent of your wool going to one destination it has got potential to drag back the market.”
Mr Croake said the company’s clients are not speculating which way the market is going to go.
“But the reality is whilst they are unable to get the wool and in and are unable to process it, it is obviously going to cause some issues over the coming weeks.”
Mr Croake said it seems that the Chinese authorities are managing the coronavirus better than the SARS outbreak in 2003.
“The significant difference between now and SARS is the significant difference in the amount of wool being produced.
“I would say compared to the SARS period, the pipeline is still very empty of wool, but we will see over the coming weeks it will have a negative impact on the market while this uncertainty remains.”
Mr Croake said most of the wool processing areas in China are within a three hour travel radius of Shanghai.
“Where the wool is processed is a fair distance away from Wuhan, but there are plenty of (coronavirus) cases in Shanghai now.”
He said Australian wool exporters and traders do not traditionally travel in China at this time of the year.
Australian Council of Wool Exporters and Processors president Matt Hand said current information indicated that most woollen mills in China would re-open on the 8th or 9th of February.
“But they are yet to hear how their workers are going to be placed in terms of getting back to the mill, depending on where their workers are coming from.”
He said most workers are at home during Chinese New Year, coinciding with the coronavirus outbreak, they would have to get public transport from regions that may or may not be affected.
“So that is going to stagger the return of workers and we don’t know how much impact that will have on factories and banks etcetera.
“Certainly there are still people who still need to buy wool and factories plan to re-open,” he said.
Concerns about delayed wool price recovery
Wool industry analyst Chris Wilcox said the SARS outbreak in 2003 coincided with a decline in a smaller wool price supercycle at the time.
“Everything was building up for it to turn down anyway – SARS was the trigger.
“This time around, we have already had the decline coming off the supercycle and the triggers seems to have been the US-China trade problems,” he said.
Mr Wilcox said there had been signs of improvement in the Australian wool market before Christmas and in the New Year. He is concerned the coronavirus outbreak might “knock that recovery on the head a bit and push back the recovery by two or three months depending on how long this runs, of course.”
“Certainly talking to some of my contacts in China over the weekend, they are all staying home and being very cautious.
“We also need to be cautious about what is going to happen and how it might unfold.”