Aussie wool prices correct after two-week surge

This week we witnessed the rare occurrence whereby the skirting and open type types were achieving similar to slightly higher clean prices than the fleece counterparts of similar quality. Crossbred and carding types managed to hold on reasonably well, but by weeks end had up to 15 acents shaved from their levels.

Reportedly, a sudden and unforeseen increase in bales offered by more than 20% gave exporters and overseas buyers the opportunity to be more opportunistic in their purchasing. Originally slated for about 40,000 bales the series turned up with 48,000 bales with little advance warning to the trade of the increased offering. From the opening lot of selling, the market, particularly the Merino fleece section, was effectively eased backward in price in a very controlled manner with sale room operators testing out each other’s willingness and intensity to buy.

The resultant weak and retreating market became inevitable. In the wash up, a massive 17% of wool offered had been passed in, a figure which nearly matched the additional quantity that had been added to the sale series.

In the past three weeks, a high percentage of the Australian wool clip has been purchased by relatively few buyers. Spot demand for Merino fleece appears filled, whilst skirting types remain in an oversold situation.

Crossbred and cardings also appear to be less under pressure, but buyers may well have taken the opportunity to pull back prices. With so few buyers buying the majority of wool, finances would be getting tight for these exporters who will now need to concentrate what money they have on hand for immediate delivery orders, and any discretionary spending for future order cover or speculative stock buying was virtually eliminated for a number of them.

The sharp strengthening of the AUD: USD to over $0.92 has also stemmed the flow of fresh business being written, as rumour has it that a few of the major Chinese buyers were/are expecting our currency to be trading in the mid 0.80’s by November/December period where demand appears to be unfulfilled.

September and October shipment months now appear well covered and the urgency for forward contracts seems diminished. With a new Australian government to be sworn into office next week, there is an air of unpredictability of the Aussie dollars direction, but most pundits are expecting the new power to be resilient in their approach to making the dollar work in favour of our exports and a weaker Aussie dollar will hopefully spur our market back into a positive direction.

Next week will again feature a large offering. Hopefully some confidence and positive demand signals can be found by those trade participants attending the annual Nanjing Wool Market hosted International Wool trade Conference in China until Monday. With the auctions finishing on a very limp note and a large volume of wool hit-ting the deck, it would be very difficult to predict a market recovery occurring in the upcoming series.

Australian Wool Innovation Limited