International wool processors put the case for auction recess

Terry Sim, April 6, 2020

Nanshan Wool Market chair Madam Yang.

AUSTRALIA’S wool industry was asked two weeks ago to consider halting auction sales for a few weeks during the COVID-19 pandemic.

And more European processors have written to Australian wool industry leaders in the past week urging either a halt to sales or an auction recess, after the market’s benchmark indicator crashed 155 cents.

Despite the backlash from international processors, Australia’s industry leaders and brokers have opted to continue sales to allow growers to sell wool. Two-day auctions are scheduled to take place in Australia this week from tomorrow and next week – Week 42 — traditionally an Easter recess, in a sale in which some buyers have already indicated they will not attend.

Sheep Central has learned that on March 20, managing director of the influential Nanjing Wool Market Madam Yang Xiaoxiong, wrote to Wool Industries Australia chairman David Michell suggesting the Australian industry follow South Africa and New Zealand in stopping sales for a few weeks. Madam Yang is also director of the China Wool Textile Association’s greasy wool special committee.

In her email, she said the rapid development of COVID-19 around the world and particularly in Australia “has made us extremely concerned about the well-being and safety of all friends in the Australian wool industry”.

“We fully understand the tough measures that the Australian government is taking.

“It will be paramount to save human lives more than anything,” she said.

“We are moved to learn that the wool industry in Australia is trying its best endeavour to keep “the door open”, but we also prepare the worst scenario to happen which may lead to a total shutdown.

“In actual fact, both South Africa and New Zealand have already made the decision to temporarily cease trading activities as far as wool trade is concerned,” she said.

“Given the severity of the current development, we would like to suggest that Australian wool industry to follow suit and arrange few weeks stoppage until the situation is eased.

“To do this, most of the people in the wool industry can be better protected and safer by reducing the social contact,” Madam Yang said.

“It also reduces high trading risks for the parties concerned.

“Interruptions in any of the pipeline including logistics and banking services will place uncertainties upon trading parties.”

Madam Yang wrote that when wool is purchased by sellers, but cannot be guaranteed for shipment due to unavailability of shipping arrangements, “either seller or buyer will be victimised and the payment cannot be guaranteed as a consequence according to the trading terms”.

“We may need to work to get to avoid such unnecessary disputes in the foreseeable future.

“I know it will not be a light decision to make,” she said.

“However, we wish to see that the risk of exposure of employees to COVID-19 in the Australian wool industry can be kept absolutely minimum and also to reduce the trading risks in this turbulent time.

“Of course, we will respect whatever the decision you are going to make,” Madam Yang said.

“We are here to support you to get through this unprecedented difficult time.”

Italian processor urges a halt to Australian wool sales

On 3 April, Francesco Botto, the chief operating officer of Italian processor REDA sent an email to Australian industry leaders – AWTA managing director Michael Jackson, AWEX CEO Mark Grave and Australian Wool Innovation CEO Stuart McCullough.

He said due to the continuing coronavirus situation, all the company’s customers in Europe and the United States have closed their shops and only in China and Japan was business moving, “but very slow.”

“Italy now will be locked till the 13th (of) April but the other country are two weeks behind Italy, so things will get worse unfortunately for them.

“This situation is creating a slowdown in the market that never has happen in the past,” he wrote.

“In this type of situation (we) urge to take some very difficult decision and one of this is to stop the auction, because (it) is giving to the market (a) false signal.”

Mr Botto said in the current situation most mills have 20-50 percent fewer orders, which will mean stock will last for more time and there is less need to buy wool.

“You should really think what’s is better for the growers, for the market, for the industries and as I said, for the moment, the best option is to stop the auction.”

Modiano echoes Schneider calls to stop sales

International processor Michael Modiano also echoed the wishes of Schneider Group managing director Giovanni Schneider, who last week called for the Australian wool auction sector to bring forward a three-week July recess to “stop auctions immediately.”

Mr Modiano said doggedly carrying on with wool sales and the resulting drop in the market is “sapping whatever confidence is left”.

“You can’t flog a dead horse.

“Retailers and consumers aside, a continued slide in the wool price is also forcing the wool pipeline to revalue the value of its stocks and when write-downs impact on company earnings their banks/backers will take fright and are likely to reduce or pull credit lines completely,” he said.

“This would result in a further downward spiral as working capital gets sucked out of the wool industry/pipeline.”

Mr Modiano acknowledged his view came from a European perspective, but he also included some comments received from Modiano’s Shanghai office.

“We urge you to suspend sales for a number of weeks until the worldwide impact of the virus becomes clearer and some normality/stability returns to global markets.”

Mr Modiano’s Shanghai office reported that the big prices plunge this (last) week in the only country where wool sales were still going on caught early stage processors “offhanded”.

“(The) majority of people in China expected market would be stable with all the other wool producing countries suspending sales.”

The Shanghai report said last week and early this week some local orders were still manageable, but the big (price) drop made new sales very difficult.

“Processors have to adjust their selling prices to cope with the new price level.

“Wools undelivered or unshipped are now all become expensive.”

The Shangai office said nobody likes the prices to drop this much in Australia.

“The virus slows down China’s economic activities and since the resume of production new orders had been quite hard to write into books.

“It’s a very fragile balance and seems this week’s big price drop disturbed this balance.”

Mr Schneider has said the current situation will only push market lower creating false expectations on retailers who will push for lower prices in future.

He said Australia’s decision to carry on with auctions and the consequential drop in prices have already created huge losses to the entire supply chain — including to wool growers all over the world.


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