WOOL prices surged higher into record territory this week, with the benchmark AWEX Eastern Market Indicator lifting 51 cents to peak at 1500c/kg clean.
AWEX senior market analysts Lionel Plunkett said the AWEX EMI continued to explore uncharted territory and has risen seven out of eight selling weeks in 2017, making it the best start to a calendar year since 2011.
The micron price guides in the 18.5 to 20-micron range are all at record levels for the AWEX series (since 1995), but still have some distance to go before eclipsing the levels set in 1988.
With the $A-US exhcnage rate at US76.56 cents, the EMI in $US terms rose 34 cents to 1148 cents. Brokers passed in 2.9 percent of the 40,626 bale offering.
“From the opening bid on the first day of selling in the eastern states markets, prices jumped quickly and continued to strengthen all the way to fall of the final hammer in the western region,” Mr Plunkett said.
“Once the dust had settled on a hotly contested auction, prices had generally increased by 30 to 50 cents for the day.
“The second day of selling saw more price increases, the largest rises occurring in the Eastern markets as they caught up to the levels achieved in Fremantle the previous day,” he said.
“The EMI managed to add a further 19 cents to the 32 cent lift it achieved on day one.”
The skirting market followed the lead of the fleece market and experienced large rises for the week, he said, generally 50 to 80 cents higher compared to the previous sale, although some finer better style types recorded increases of 100 cents.
Mr Plunkett said the crossbred market has maintained its renewed support and managed to post increases for the third week in succession, generally increasing by 20 to 40 cents. The oddment market did not get left behind with the three carding indicators gaining an average of 20 cents when compared to the previous sale, as in other sectors the finer microns were the focus and posted the largest gains as a result, he said.
“The sharp increase in prices has encouraged more sellers to the market, pushing the national quantity up to over 47,500 bales with selling in Sydney, Melbourne and Fremantle.”
Prices expected to remain around current levels
Techwool Trading export manager Josh Lamb said a very strong market was expected this week, although the end result was a bit outside expectations.
“Given the currency movement last night, it won’t be any cheaper next week.”
Mr Lamb said in recent years there had been a genuine pull-through of increasing demand, while the Australian wool clip has declined, especially with seasonal conditions.
“We’ve been telling customers in China for as far back as 7-8 years ago that quantities in general, not just fine wool, were in decline.
“That has coincided with them running their stocks down to zero over the last few years for other reasons, mostly finance and economy reasons,” he said.
“It has all just come together at once.
“It probably looks fairly sudden, but it has been building toward this for a few years,” Mr Lamb said.
“This could be a new era for the industry – I’m not saying these levels will be surpassed considerably, but you can certainly assume that up or down 5pc on these levels for the next few years is not out of the realms of possibility.
“This could be how it is going to be for the next 2-3 years.”
Demand is outstripping supply
Australian Wool Innovation’s weekly wool market report said there was widespread belief in the current price levels before this week’s sales, with many trade participants reported most of, if not all, stock lots being held by exporters and Chinese based traders selling at full market rates.
“All destinations were keen to take whatever was available.
“India and Italy were interested, but it was mainly the wool starved mills of China that were hitting the exporters up for quantity,” AWI said.
AWI said, over the past two years in particular, demand has been steadily building, increasing the general wool price in $A terms by 407c/kg clean and the $US price by 298c/kg clean or 37 percent and 35pc respectively.
“Many of the more experienced local trade operators have reported the growing demand of recent years as similar to the build up to the halcyon days of the insatiable USSR appetite for buying Australian wool which saw prices hit record levels in the late 1980’s.
“This season’s price gains in the Merino sector continues unabated with just the odd week or two of subdued or dampened price levels,” AWI said.
“The general market measuring stick, the EMI, has progressed steadily from 1330c/kg clean in July 2016 to 1500c/kg clean, a 13pc gain in just eight months.
“In $US terms, the gains are even better, at nearly 16pc, an unmistakeable indicator of our major overseas manufacturers and their customers’ willingness to pay the ruling price of the day and a pretty decent pay rise for Australian wool growers.
“Significantly these price gains have been achieved in a season that has so far produced more than 60,000 additional bales or a 5.7pc increase of first-hand offered wools at auction and AWTA key test data figures showing an increase of wool tested of 3pc,” AWI said.
“Unquestionably, demand for wool is outstripping supply and it is this improvement in demand that is the driving force behind the steady rise in returns for wool growers.
“Hopefully these current prices will give further confidence to land holders that a wool and sheep operation is a worthwhile and profitable pursuit.”
AWI said the best superfine wools finer than 19 micron and suitable to Europe were the major beneficiary of bidding this week and were upwards of 140-180c/kg clean dearer for the week.
“The large Chinese indent operators certainly participated more noticeably, but three or four of the major trading companies were still able to wrestle most of the quantity available away from them.”
AWI said quantities have lifted for next week, as is now a common tactic with most market major rises, and around 47,500 bales is to be offered.
“Strains on some buyers access to funds and a large enough volume to let buyers ease their buying intensity are forecast to impact just slightly enough on the market to allow a more selective and a combative approach to most buyers’ operations.
“A very slight pull back was witnessed towards the close of selling, but this was restricted to the harder to place wool types.”
Click here to see the latest AWEX Micron Price Guides.
Source: AWEX, AWI, Techwool Trading.