Outlook buoyant as volumes drop

As the WA wool market moves into a traditionally slower trading period coinciding with seeding, there is confidence that lower auction volumes will keep prices buoyant.

There were 6352 bales put under the hammer in WA last week and 6065 bales were rostered for the Fremantle auction held yesterday. The next two local sales have catalogued 6300 and 6500 bales, respectively.

Nationally, just over 37,500 bales were offered last week and about 40,300 bales were scheduled for auction sale this week, but rostered volumes then drop to about 34,200 and 37,900 bales in the next two weeks.

This is a contraction of 10 per cent for the three-week sale period compared to the same time last year.

Lower wool availability last week resulted in Fremantle prices kicking 10–30 cents per kilogram across all fleece wool microns.

The Western Market Indicator finished up 16c/kg at 1276c/kg and nationally the Eastern Market Indicator lifted 9c/kg to 1323c/kg.

The slight correction in wool prices since the March peak has been a minor trough in what had been a racing market for most of 2010–11, according to West Coast Wools director Mal Edinger.

He said finer wools were most affected in the recent slump, with 18 micron wools losing about 230c/kg since a peak of 2160c/kg in March.

Medium wools (21 micron) had come off only about 35c/kg since the March peak and last week finished in WA at 1285c/kg. This remains well above the WA 21 Micron Price Guide season opening level of 930c/kg.

Mr Edinger said the rise of the Australian dollar against the US dollar had been a major driver of the recent wool market correction, which had coincided with peak autumn shearing offerings, but medium wools had been spared big price falls as Chinese buyers moved away from fine wools to more affordable broader types.

Despite the recent blip, he said underlying fundamental market conditions remained strong for fine and medium wools and he expected prices to stay around current levels in the short-medium term, even if the Australian dollar stayed high against the Greenback.

Last week the influence of US currency movements on the Australian wool market was seen when both were up on Wednesday and both fell on Thursday.

Mr Edinger said lower volumes of wool coming on to the market to the end of June, continued high oil prices that increase the cost of synthetic fibres, record high cotton prices and a resurgence of wool promotion were positive factors for the sector, regardless of US currency movements.

“It is particularly pleasing to see Australian Wool Innovation renewing its wool promotion efforts, as this has been lacking in recent years,” he said. “No product will survive in today’s marketplace unless it is actively promoted and we haven’t seen that for wool for quite a while.”

Mr Edinger said a potential dampener in the coming month could be Chinese Government credit restrictions. These were designed to hold more funds in reserve and could hamstring Chinese wool importers.

“It appears there are letters of credit available for wool that is already on the water, but the Chinese importers might not be able to borrow as much in coming months and that could impact on the market,” he said.

“To a certain extent, China is also waiting to see if it can on-sell its wool tops at current high prices and gauge how the supply chain — right through to the consumer — will accept higher prices for wool.”

Mr Edinger said reflective of the wool trade nationally, the volume of wool his company had shipped to May 2011 was down by about 14 per cent year-on-year. But its value had increased because of higher prices and favourable exchange rates.

He said China continued to lead the market, taking about 70 per cent of WA and national wool auction offerings, followed by India, Europe and Japan.

West Coast Wools recently hosted the general manager of Japanese buying house Takisada-Osaka to discuss the purchase of WA wool types suited to its quality wool processing operations and the company’s sales manager was visiting wool buyers in China last week.