STRONG wool grower resistance to lower prices and adjustment of reserves to meet demand at reduced levels enabled Australia’s auction market to survive its first week under the influence of China’s spreading coronavirus outbreak.
Although about 44 percent of this week’s sale catalogue being either withdrawn (15pc) before, or passed in (29pc) at, auctions this week, sales are scheduled to continue next week.
“That (wool withdrawals) definitely had an impact on the market,” one broker said.
Despite some suggestions to cancel wool sales, trade confidence has been buoyed by the final market result this week, with the AWEX Eastern Market Indicator closing 28 cents lower at 1548c/kg clean.
Nevertheless, brokers said some of their concerns include letter of credit issues, whether and when wool being shipped to China would be released from customs, and when would workers get back to re-start mills after their Chinese New Year break.
Growers being kept informed of developments – Elders
Elders National Wool Selling Centre manager Simon Hogan said the company’s growers were being kept informed on what exporters were saying on the show floor and on reports direct from China, to enable them to make their pre-sale marketing decisions.
“So we are trying to keep them update as much as possible with feedback from the trade, who are talking directly to mills in China about the current situation.”
Mr Hogan said after Wednesday’s difficult sale, some Elders clients scheduled to sell wool on Thursday withdrew wool. He said the nearly 40pc of the Elders catalogue that was withdrawn helped the growers who chose to sell at realistic reserves, yielding a good clearance compared to the market-wide result.
“We were fortunate in Melbourne to sell last and get the better part of the week.
“There is still a lot of uncertainty and we are all hopeful that it will fix itself relatively quickly, but that is unknown,” Mr Hogan said.
“Next week is a fresh week, at the minute the forwards are positive and we are hopeful that we won’t see a similar scenario next week.”
Market fell when a lift was expected – de Kleuver
Rodwells wool manager Michael de Kleuver said the company passed in half its catalogue on Wednesday, while admitting if asked last Friday, he would have said this week’s market would be 30-40 cents dearer.
“The difference between Friday and Tuesday was quite extreme; more worry about the virus, people (in China) not returning to work or can’t get to work and the extension of the New Year holiday.
“Obviously they are stopping people from moving and stopping truck movement ….by Tuesday the view was very negative,” he said.
“Of course, buyers adopted a wait-and-see attitude and it got cheaper on Wednesday because everybody chose to sit on their hands, which was perfectly understandable if you are a trader.”
“I think 15pc was withdrawn before the sale Thursday and 25pc was passed in.
“So we sold a lot less and then the pressure came back on some of the exporters to secure wool they had to buy,” he said.
“Now we are just waiting to see what develops over the next few days.”
Mr de Kleuver said he had heard calls to cancel wool sales, but there are clients who have consigned wool to sell this week and next week that need the money, which meant paying closer attention to reserves to allow brokers to sell at levels that are “the best value on the day.”
He said market concerns seemed to dissipate as the week progressed, but next week another chapter starts.
“I think there is optimism about, with Australia copying the virus and other positive snippets, giving people an injection of confidence.
“Our business survives on confidence, the chain is very long, so if you think there is going to be any hiccup downstream the easiest thing to do is to not buy wool.”
Mr de Kleuver said the decision to cancel a wool sale is difficult, “because there are people who need to buy wool and people who need to sell wool.”
“It would be different if the entire trade said to us, we can’t ship a kilogram of wool and we’ve got some issues, then force majeure would obviously arrive and we would have to make some decisions.
“It is a really big industry question and everybody would have their input,” he said.
“It’s a massive decision to say we won’t sell wool for a week – that’s a big call.”
Market expected to be competitive – Shelley
Australian Wool Network state manager Kelvin Shelley said the company’s clients sold wool on Thursday when there was more confidence and stability in the market than on Wednesday. This was helped by the withdrawal and passing in of wool on Wednesday, with some exporters also concerned about finance arrangements in China, he said.
“It also probably helped that things didn’t get to the extent that they thought they may have in China.
“Some of the buyers had had contact with top makers, spinners and weavers in China,” he said.
“We are week-by-week at the moment and the way it finished this week, I think we shouldn’t have too bad a week next week.
“The market should competitive enough with the low volumes, with only about 36,000 bales nationally, so there is not a lot of wool there as it is,” Mr Shelley said.
“Before the outbreak we were expecting the market to be 20-30 cents dearer this week, so the confidence was there before the virus outbreak.
“I think that (confidence) should only build over the coming weeks,” he said.
“There is not a lot of wool around, so if you can hold and sit tight, that’s what we are advising.
“But as we could see in yesterday’s market there is still very good competition from the buyers in the room … we had wools that sold up to last week’s levels,” Mr Shelley said.
“I’ve got confidence in offering wool over the coming weeks.”
Predicting market is ‘nigh on impossible’ – Wilcox
National Council of Wool Selling Brokers of Australia executive director Chris Wilcox said with the Chinese Government extending the Chinese New Year break, including for banks, and implementing domestic travel restrictions, Chinese wool importers held back on ordering this week.
“This resulted in sharply reduced activity in the auction rooms, notably on Wednesday, as Australian buyers worried about short-term demand and finance.
“Pass-in rates soared to 37pc across the three selling centres on Wednesday (49pc of Merino fleece passed in) and prices slumped, particularly for superfine wool,” he said in his weekly NCWSBA newsletter.
There was some stability on Thursday after 25pc of the rostered offering was withdrawn from sale, constraining wool availability and pushing prices higher, Mr Wilcox said.
“Predicting what will happen from here is nigh on impossible.
“It is a moving feast, with the situation changing rapidly,” he said.
“The number of cases is rising exponentially, and the global response is only now starting, including bans on flights to and from China by some airlines.
“The only thing I think that anybody can say with any confidence is that it will get worse before it gets better, but how long before it gets better is anybody’s guess,” Mr Wilcox said.
“There will be a blow to economic growth in China and on the world economy, but the level and extent is, of course, unknown.
“The Economist Intelligence Unit commented overnight that, while they have not yet changed their forecast of economic growth in China of 5.9pc in 2020, their initial calculations show a hit of between 0.5pc and 1.5pc to this growth rate this year if the virus spreads in a similar fashion to the 2002 outbreak of Severe Acute Respiratory Syndrome (SARS),” he said.
“Looking back at the impact SARS had on wool prices in 2003, the EMI fell by A$119 cents to A$980c/kg in the first week of May 2003 when the severity and extent of SARS and its possible effect on the Chinese economy and on the wool market was recognised
“This compares with the A$28-cent (US38 cents) decline in the EMI this week,” he said.
“But, as I said in last week’s edition, the market circumstances were very different in 2003 with the SARS outbreak.
“The EMI had peaked in a supercycle in January 2003 and was overdue for a reversal, so the SARS outbreak was a trigger,” Mr Wilcox said.
“As well, Australian shorn wool production was around 500mkg.
“Now, the US-China trade war already triggered a decline in wool prices from the 2018 supercycle, and shorn wool production is far lower at a forecast 272 mkg for 2019/20, so the impact on wool prices may be less.”