AUSTRALIA’S wool market has staged a record turnaround following improvements in Chinese bank sector liquidity and reports of high American clothing retail demand and increased clothing imports from China to avoid tariff increases.

Concern the market had fallen too low and the return of major indent buyers, might also have underpinned the renewed competition that led to record daily price rises at auctions.

The benchmark AWEX Eastern Market Indicator lifted 170 cents for the week to 1535c/kg clean, the highest weekly gain on record.

AWEX senior market senior market analyst Lionel Plunkett said after showing signs of improvement on the final day of the previous week’s sale, the Australian wool market turned around in stunning fashion, breaking a host of records along the way.

“From the opening hammer of the first selling day, it was immediately apparent that buyer confidence had returned.

“With the confidence came strong spirited bidding from all major players, resulting in large price increases,” he said.

“As the sale progressed prices steadily rose, as exporters fought hard to secure market share.”

Mr Plunkett said the main buyer focus was on the broader microns, which pushed the individual Micron Price Guides (MPGs) for 19 micron and coarser up by 160 to 200 cents.

“As Fremantle did not sell on Thursday last week, the region did not experience the price rises that the Eastern centres enjoyed on that day.

“As a result, the Western region posted the largest gains of the day, 176 to 235 cents. The Western market indicator rose by 198 cents, the largest increase since AWEX records began (1995),” he said.

The southern and northern region also posted record increases, 132 cents and 126 cents respectively.

“On the back of these record gains, the AWEX Eastern Market Indicator (EMI) added 130 cents for the day, again the largest daily increase in history.

“On the second selling day only Melbourne and Fremantle were in operation, as Sydney had a one-day sale,” Mr Plunkett said.

“The reduced offering again came under intense buyer demand and again prices continued to rise.

“The MPGs rose by another 40 to 100 cents, pushing the EMI up a further 40 cents,” he said.

Mr Plunkett said as expected, the large price increases have enticed sellers back to the market.

Brokers offered 21,839 bales this week and 6.2pc were passed in. The EMI in US$ terms rose US125 cents to US1056c/kg clean.

Wool price rises totally unexpected – AWI

The Australian Wool Innovation weekly market report said although expectations of a market adjustment upwards were commonplace, the ensuing price rises were totally unexpected.

“The magnitude of, initially the falls and thence the subsequent gains, are not only indicative of the volatility of current demand, but also a result of the hand to mouth nature of the operations of the modern day industry.

“In the limited supply, any slight shift in sentiment to the positive will produce magnified movements and this week’s gains were exaggerated by the market price falling way below the balance point of supply versus demand,” AWI said.

“The three weeks of previous sale results were perhaps not reflective of the actual demand scenario, but more slanted to the sentiment of global rhetoric influencing confidence negatively.

“As the dust settled on the market fall, potential losses were examined and almost all company’s involved in the trade had some serious issues to face as far as plummeting value of their stock inventory was concerned.”

Hopefully the gains of this week can alleviate some of that pain, AWI said.

Australian exporters led the charge

AWI said the auctions were firmly led by the local Australian exporters.

“The top four exporters topped buying lists and from the outset were intent on locking some volumes in.

“Price levels available from the  overseas users had reportedly lifted to full market rates and above by Monday, flagging the most likely dearer market result that eventuated.”

AWI said indent operators only became influential towards the close, as they were initially left behind by the traders at the start of the selling. AWI said sellers withdrew a lot of wool originally scheduled for sale.

“Growers exercising their right to withdraw or pass in their wool certainly appears, on the surface, to have been the right call over the past few weeks, if the market sticks or improves upon current levels.

“Buyers are fully expecting a mini-flood of wool pushed back into the auction scene now and it will be somewhat of a litmus test as to the state of immediate requirements dependent on market direction once the volume hits.”

China moves to stimulate economy

Reuters reported last week that China’s central bank was cutting the amount of cash that banks must hold as reserves for the third time this year, releasing 900 billion yuan ($126.35 billion) in liquidity to shore up the flagging economy facing escalating U.S. tariffs and sluggish domestic demand. The RRR for large banks will be lowered to 13pc.

Fox and Lillie brokerage manager Eamon Timms said he was not sure if The People’s Bank of China’s announcement to cut the reserve requirement ratio by 50 basis points for all banks had anything to do with the market recovery. There was an additional 100 bps cut for qualified city commercial banks.

“It is an effort by them to increase liquidity in the economy to try to free things up a bit.”

He said the Australian wool market has had a “wild ride’ recently and said there was increased enquiry late last week and on Monday/Tuesday this week.

“It is quite appropriate that you’ve got the Melbourne Cup coming up and you’ve got the big dipper of a wool market.”

Mr Timms said there was a bit of panic among buyers this week, who expected the market to lift on Wednesday, although not to the extent it did.

“When things started to go up, they didn’t want to miss out.”

Mr Timms said there was not much greasy wool in the pipeline, although there were stocks of yarn and garments, especially in China where domestic spending had been very muted.

“There is some speculation that there might have been a bit of game-playing by some of the larger Chinese operators.”

Chinese wool product imports into US increase

In his weekly newsletter, executive director of the National Council of Wool Selling Brokers of Australia Chris Wilcox said the latest data on the US imports of wool clothing from China suggested that US importers and retailers anticipated the additional import duties by importing more wool clothing in June and July.

“US imports of apparel of all fibres lifted by 9pc in both quantity and value in July. By fibre, the year-on-year increase was largest for wool clothing, which leapt by 33pc in quantity and by 14pc in value for the month.

“This large increase came following a 27pc increase in quantity in June, while the value of imports of wool clothing was 6c higher,” he said.

Mr Wilcox said the monthly increase in July pushed the quantity of US imports of wool clothing up by 13pc for the seven months of 2019 to July for 12pc increase in the value of wool clothing imports.

He said wool clothing imports for 2019 to date from China (the largest supplier) lifted by 17pc in volume and by 22pc in value. China accounted for almost half of all US imports of wool clothing in the first seven months of 2019.

Mr Wilcox said it will be interesting to see whether the increases in imports of wool clothing in June and July, particularly from China, continue in August.

“It is likely that these gains in imports will be reversed in September and for the remaining months of 2019 given the additional 15pc import duty that the US has imposed on wool clothing imports from China.”

He said the jump in imports of wool clothing by the US comes when consumer confidence in the US remains high and US clothing retail sales have increased significantly.

Next week, the scheduled wool offering at Australian auctions has increased to 31,107 bales, with all three centres in operation.

Click here for the latest AWEX Micron Price Guides.