Strong finish to Australian wool market for 2019

Terry Sim, December 20, 2019

Australia’s wool market has closed out 2019 with strength. Image – Fiona Raleigh, AWEX.

AUSTRALIA’S auction wool market finished strongly this week after trade tensions between China and the United States eased and there was more clarity around Brexit with the United Kingdom election result.

The AWEX-Eastern Market Indicator added 55 cents for the series and closed the year at 1558 cents/kg clean.

AWEX senior market analyst Lionel Plunkett said the EMI is now 304 cents lower than this time last year, the largest calendar year fall since 2003.

“At this sale, the market took a lead from the previous week when the EMI crept 11 cents higher.

“A looming three-week auction recess over Christmas, as well as a reduction in volumes this week – 34,776 bales and 7766 fewer than the original estimate — might have contributed to buyers pushing hard to fill orders from the opening hammer.

“An unusual Tuesday/Wednesday rostering due to Christmas holiday logistics in the following week did little to dampen enthusiasm and Merino Fleece types jumped 50 to 60 cents clean dearer on the opening day,” he said.

“Wednesday was not quite as buoyant, particularly in Fremantle; however, all three selling centres still recorded increases and the Micron Price Guides generally closed 60 to 90 cents higher for the week.”

Mr Plunkett said Merino skirtings tracked a similar path also closing as much as 90 cents dearer over the two days. Crossbreds made equal gains each day to finish 60 cents higher for the series.

Merino cardings had mixed results depending on the selling centre, but all three auctions managed to eke out gains on the final day to go into the recess on a positive note, he said.

Positive global news and exchange rates – AWI

In his weekly market report, Australian Wool Innovation trade consultant Scott Carmody said this week’s result should be a fillip for all involved as no section of the wool pipeline has been left untouched.

“Growers are continuing to face the hardships of drought, causing brokers receivals to be way down.

“Buyers, exporters and traders are faced with earlier stock and trade losses, whilst machinery owners, garment makers and retailers faced slow demand, sales and inventory devaluation,” he said.

Mr Carmody said the rise in the USEMI of about US33 cents, or 3.3pc, to close at US1067 clean/kg, meant there has been a 12pc reduction of the USEMI since the start of the season, “which has given a larger price advantage to overseas buyers.”

“The past seven days has been the best week of positive news that the season has produced.

“The USA and China came to some sort of understanding over their trade imbalance dispute,” he said.

“Hopefully we are well on the way to clearing up a severely detrimental factor on the global economy.

“The UK election result has forged the path for pushing Brexit through, with that problem more relevant given the premium market that Europe is for apparel wool products,” Mr Carmody said.

“Another contributing factor to the market gains was the lack of the advertised quantity once again failing to materialise at auction.

“A little over 34,000 bales, or 12pc lower volume, eventually saw their way to the selling rostrum,” he said.

Significant quantities of wool held back

Mr Carmody said brokers passed in just 7.7pc of bales offered, as price levels gained rapidly.

“Purchasing was again dominated by the big players of each segment.

“Significant though was the step up by Chinese top makers on all Merino types and descriptions which gained 70-90 cents for the week. Crossbreds were 60 cents dearer and cardings 20 cents-plus,” he said.

“Perhaps the market rising in conjunction with the better global economy news is no co-incidence and gives rise to a more positive outlook for the new year ahead?

Mr Carmody said significant quantities of wool have been held back by growers and decision making as to how and when that is dispersed will need close monitoring by their wool selling brokers.

“Shearing is reported to be well in advance of normal timings, so a reduction of fresh shorn wool in 2020 is expected on top of the already 8.5pc less volume tested.

Impact of China-US trade deal not clear

In his weekly newsletter, executive director of the National Council of Wool Selling Brokers Chris Wilcox said the lift in wool prices may have been helped by the easing of trade tensions between the US and China with the announcement of the ‘Phase One’ trade agreement last Friday.

“There is a lack of clarity in what is specifically in the new agreement.

“One thing that has been confirmed is that the additional new US duties that were due to be imposed last Sunday are suspended,” he said.

“This did not include any wool products.

“As well, the US will halve its 15pc duties on about US$120 billion on imports from China to 7.5pc,” Mr Wilcox said.

“These products may include the duties on wool garments which were imposed in September, but it is not yet clear.

“The original import duties resulted in US imports of wool clothing from China slump by between 40pc to 45pc in October, following a 15pc drop in September,” he said.

“If the additional duties on wool garments are halved, then this will boost the trade between China and the US, helping mills in China and ultimately raw wool demand.”

Auctions will resume in the week commencing 13 January 2020 after the annual three-week Christmas recess.



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