A FURTHER correction in Australian wool prices this week has been attributed to strong buying earlier in the season, currency exchange rates and current offering quality.
The Australian Wool Exchange said the AWEX Eastern Market Indicator dropped 31 cents to finish the week at 1525c/kg clean.
“Although the EMI only dropped by 2pc for the week, the pass-in rate in the fleece sector was over 15pc, showing grower reluctance to accept the marginal reduction in price.”
AWEX said after last week’s steady market where the Benchmark Eastern Market Indicator (EMI) lost only 2 cents, this week has seen a return to large movements, this time corrections. The tone was set early on the first day when types were quickly discounted.
“The finer edge of the offering, in particular wools with unfavourable test results, were the hardest hit, in some cases losing over 80 cents when compared to the previous sale.
“Generally, the losses were 30 to 60 cents with the effects felt across the entire Merino spectrum.”
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The EMI fell by 28 cents on the first day of auctions this week and on the second day, the market managed to settle. Most types and descriptions traded at levels that were plus or minus 10 cents of those achieved on the previous day, AWEX said.
“The exception was Melbourne, which posted larger losses for some types, in particular the 18 to 19.5 micron bracket, which recorded falls of 20 to 30 cents.”
AWEX said crossbred wools followed a very similar path to the Merinos, with heavy losses on day one, then settling on day two.
“However, reductions of around 15 to 30 cents were still experienced for the week.”
The skirting market also closely mirrored the fleece, with falls then consolidation to record general losses of 20 cents and faultier types most affected. The oddment market was the best performer for the sale. Although there was a limited offering, strong competition enabled the three carding indicators to show on average, small improvements, AWEX said.
Forex rates, less new business and quality hits market
Australian Wool Innovation’s weekly market report said a few factors combined to weaken buyer confidence this week, including forex rates, slowing new business and a selection of wool types on offer that are swiftly moving to higher PobM test readings (position of break in the middle) playing a part.
“This test is particularly concerning to buyers of Merino fleece descriptions, as most orders are sold into China requiring an average parcel reading of 50 PobM.
“The new clips being shorn and tested across a lot of regions of Eastern Australia are producing PobM results of well over 70pobM making those sale lots hard to place in any volume.”
AWI said buyers are expecting this situation to worsen for the next month or so prior to reverting back towards more user friendly readings.
“Perhaps the most stated reason this week for the reversing fortunes of the local market is the fact that in the first eight weeks of selling this season, 24,500 bales more has been sold to the trade compared to the same eight weeks of last year.
“This is reportedly putting a strain on local auction buyer’s finances, but also highlights the strong demand for Australian wool,” the report said.
“This is particularly relevant given that the price at present is around 16pc higher on average than last season.
“Put in perspective, this means an estimated 45 million more Australian dollars has been needed to fund the Australian wool clip sold so far, or in other words, an additional 22.5 million dollars needed each month of the season.”
AWI said the underlying solid demand for wool is given further credence by the fact the increased buying has occurred when 11pc more wool has been available or offered compared to last year.
“Growers are obviously believers in the long term prospects for price sustainability, as this season has seen sellers pass in 8.1pc of the offering compared to passing in 5.7pc at the same time last year, when prices were at times up to 20pc lower.
“In fact this week saw pass in rates of 15.5pc which is probably related more to the rapid movement lower from the growers’ pre-sale valuations received from their broker, rather than prices offered,” AWI said.
There are currently just over 43,000 bales schedule for sale nationally next week.
Sources: AWEX, AWI.