Australian wool prices correct slightly under global pressure

Sheep Central, March 13, 2020

Merino and crossbred wool prices softened this week, but held ground relative to the bigger global markets adjustment. Image – AWEX.

AUSTRALIAN wool prices corrected down this week under global economic pressures, with more growers withdrawing or passing in lines at the lower prices.

However, the correction in prices was regarded as minor compared to the downturn in global economic markets this week as the current and forecast impact of the worldwide coronavirus or COVID-19 outbreak hit global confidence.

AWEX senior market analyst Lionel Plunkett said better style wools, wools carrying less than 1 percent vegetable matter and those possessing favourable additional measurement (AM) results attracted excellent buyer support.

“As a result of this support, these types were the least affected by the falling market.

“These wools; however, were in limited supply and the lower yielding wools and those with less favourable AM results did not have the same buyer support, continually losing ground as the series progressed, some falling by 50 to 100 cents for the week,” he said.

“Many of these lesser style wools are not included in the make-up of the individual Micron Price Guides (MPGs).

“As a result, the falls in the MPGs did not reflect reductions in some sectors of the market.”

Mr Plunkett said across the country, the MPGs fell by 19 to 85 cents.

“On the back of these losses the AWEX Eastern Market Indicator (EMI) fell by 41 cents for the series, closing at 1521c/kg clean.

“Due to currency movements, when viewed in US$ terms, the EMI posted an even larger fall of US52 cents to US982c/kg.”

Mr Plunkett said brokers offered 43,579 bales nationally, but 25.5 percent was passed in and 6.2pc was withdrawn prior to sale, as sellers were either unprepared or unwilling to accept the reduced prices.

“This season the amount of wool put through auction is still well down, compared to the corresponding sale of the previous season, there has been 126,694 fewer bales offered for sale, a reduction of 10.5pc.”

China demand for Australian wool holding – AWI

Australian Wool Innovation trade consultant Scott Carmody said wool auctions finally succumbed this week to the slump in the global economy caused by the COVID-19 virus outbreak and the enormous flow-on effects.

“The series of unfortunate events over the past month or so had seen the wool price bravely stand against the obvious thoughts of price degradation.

“Massive losses inflicted on influential monetary markets this week though saw our product yield to the negative macroeconomics in play that are way beyond the normal price realization basics that the wool price will normally adhere to,” he said.

“The largest influencer at present is that all stock and share markets have officially hit bear market status.

“This affects businesses’ access to finance, lost true value of the enterprise and their ability to service debt and liquidate inventory or capital assets without damage.

“A bear market occurs when the index or stock falls 20pc or more from the peak for a sustained period of time,” he said.

“The major global stock indexes initially entered a correction this month amid mounting fears about the impact that the coronavirus outbreak could have on the global economy and company earnings growth.

“Adding to this was a largely Saudi versus Russian oil market price war that had forecasts of much lower profits for globally influential energy companies, thus the bear market has ensued.”

Mr Carmody said the wool market has not gone anywhere near bear market status.

“In fact, the fall of 2.5pc this week could be read as a positive given the severity of falls on the financial markets.

“More accurately the wool price fall is categorised as a market correction,” he said.

“In normal trading and economic times, corrections are considered healthy as it gives manufacturers a chance to restock the pipeline at more attractive prices and encourages speculation which can add stimulus to the market.

“Little solace though to grower sellers coping with a reduction in income,” he said.

“By the close of selling this week, Merino fleece and skirtings finer than 18.5 micron had fallen by 50 to 65c/kg, whilst broader than 18.5 micron was less-affected, but still reduced by 30 cents.

“Mixed signals were evident between selling centres on the final day,” Mr Carmody said.

“A large offering in Melbourne saw prices actually recover slightly but Fremantle and Sydney still had prices tracking lower.

“Cardings were generally 30ac cheaper but Crossbred wools again managed to hold value.”

Mr Carmody said in addition to the problems above, the quality of wool on offer continues to present difficulties for exporters.

“In fact, more than one auction operator commented on the Sydney offering being the lowest yielding selection they had ever experienced.

“Many clips failed to average 50pc dry yield,” Mr Carmody said.

“Minimal volume of the “normal” China types were available, particularly for the commodity wools of 19 to 22 micron hitting the correct specifications.”

Mr Carmody said Chinese top makers and indent buyers competed strongly with the local traders again.

“Demand from China appears to be holding.

“Most operators to that nation constantly adjusted downward their price limits as they accumulated a quantity considered risk worthy to take into inventory,” he said.

“Also the comparatively big spend by some sale room buyers last week had cash resources stretched this week.”

Australian auction result ‘pretty amazing’ – Wilcox

National Council Of Wool Selling Brokers of Australia executive director Chris Wilcox said the 2.6pc drop in the EMI was a pretty amazing result considering the pounding global equity markets have taken this week due to the uncertainty and concerns about the spread of COVID-19.

“The US Dow Jones dropped 10pc on Thursday, bringing the total losses for the week to date to 22pc.

“The fall was precipitated by the declaration from the World Health Organisation that COVID-19 is now a pandemic, and not helped by United States president Donald Trump’s announcement of a ban on travel by non-US citizens from Europe to the US,” he said.

“In Australia, the ASX 200 fell by 15pc by the close on Thursday evening, with a further 7pc fall in early trade today (Friday).

“Remarkably, the EMI has only fallen back to levels seen just before Christmas,” he said.

“Prices in A$ terms have been sustained by a 25.5pc pass-in rate for the week and a 6.2pc withdrawal rate.

“As well, the A$ fell sharply against the US$ and the Euro (by US1.6 cents and €2.3 cents) to the lowest level since the first half of 2009,” he said.

“It also declined against the Renminbi.

“As a result, the EMI was down over the week by US52 cents to US982c/kg, by €59 cents to €869c/kg and by 327 RMB to 6848 RMB/kg.”

Next week’s auction offering increases as wool that was unable to sold in Week 35 continues to make its way to market. There are currently 50,237 bales on offer in Sydney, Melbourne and Fremantle. Melbourne has almost 30,000 bales to clear over three days.


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