Markets

Wool prices expected to remain strong after 19-cent indicator lift this week

Sheep Central, May 13, 2016

Wool sales Landmark1 MelbourneWOOL prices rose again this week, underpinned by a lower Australian dollar against the US currency.

Buyers showed a preference for stylish, high tensile strength wool 18-19 microns and finer, especially lines with less vegetable matter content.

AWEX senior market analyst Lionel Plunkett said the AWEX Eastern Market Indicator closed 19 cents higher at 1287 cents, only 17 cents shy of the seasonal high recorded in August.

With the Australian dollar falling US1.59 cents to US73.43 cents during the week, the EMI in US dollars terms went down 6 cents to US945 cents. Brokers passed in 5.2 percent of the 37,066 bale offering.

Mr Plunkett said the further losses in the Australian dollar against the US currency continued to support the wool market this week.

“Over recent weeks the EMI has displayed volatility in local terms, but when converted to US$ the benchmark indicator has been reasonably stable.

“Over the past month the EMI has traded in a 70-cent range (1217-1287 cents), but over the same period the USD spread has been limited to US18 cents (939-959 US cents),” he said.

Mr Plunkett said the market reaction this sale was similar to last week where there was a reasonably strong market on both days.

“Increases were across all microns but the most scrutiny was in the 18/19-micron area.

“Better spec types continued to be the preferred choice for buyers (mainly the more stylish 40Nkt types) but it was the lower vegetable matter (VM) types which showed more consistent premiums,” he said.

“Whilst the current season is following a typical pattern which usually sees increased levels of vegetable matter at this time of the year, 24pc of fleece wool this week registered more than 2pc VM, a two-year high, which contributed to the strong support for lower VM types.”

Skirtings were again in strong demand during this series and best length/low VM types were keenly sought, jumping 30 to 40 cents, Mr Plunkett said.

“Best length Crossbreds are reducing in number and attracted solid support this week, especially the limited number in the 25/26 range.

“Merino Cardings also recorded significant buyer interest, rising 30 to 40 cents in Sydney and Fremantle.”

Full benefit of currency changes not passed on

The AWI wool market report said while the local Australian wool auction markets produced favourable results to the wool grower this week, the extent of the rise generally failed to match expectations.

“Exchange rate fluctuations produced a 2.2pc positive for the week, but the market itself reacted to gain just 1.5pc of this potential gain.”

The EMI was seemingly held back by the relatively weaker rises of the 19.5 to 23 micron types.

“The EMI when expressed in USD remains significantly stable around similar levels, but this week saw the EMI in USD slip back a few cents to 945usc/clean kg,” the AWI report said.

The AWI report said next week’s offering has “grown” by around 18pc in the past few days with almost 43,000 bales now scheduled for auction.

“Strong competition was evident right through to the close of selling this week, so volume should not hinder the current stability in demand or the positive market direction to any large degree.

“Competition and price levels are largely expected to remain strong,” the report said.

“This is particularly relevant from the supply side, as the RSA (South African) season draws to a close in a fortnight’s time, and they head into their annual two-month hiatus in wool sales.

“Additionally the volumes from both New Zealand and South America are slowing and also heading into a seasonal lull,” AWI said.

Click here for the latest AWEX Wool Micron Price Guides.

Sources: AWEX, AWI.

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