Another impressive week for wool sellers at Australian wool auctions. Strong price gains were achieved for most of the wool on offer as the market defied the unexpectedly stronger AUD against most of the major trading currencies. The super fine Merino segment was a standout once more as common gains of 100ac clean/ kg were registered. By the close of selling the AWEX Eastern Market Indicator (EMI) broke new ground once more to escalate to 1546ac clean/kg, a 24ac gain for the week. Greater gains were achieved In USD terms, with the EMI racing 43usc higher to 1187usc clean /kg.

What is starkly apparent in the wool market at present is that demand is far outstripping supply, particularly in the superfine merino types. Australia is producing approximately 3% more wool than last year and over 6% more first hand wool has been offered so far at auction this year. Obviously supply, or lack of supply as incorrectly stated by many and is clearly not the driver of this market. Additionally, this season we have produced 4.6% more wool finer than 23 micron compared to the same time last season and we have seen the price increase substantially. Conversely, and ending the “supply is the driver” thought, is that we have produced 4.1% less wool broader than 24 micron and unfortunately we have seen price decrease significantly for these wools.

The relationship between price and the quantity demanded is commonly referred to as the demand relationship. Supply simply refers to how much the market can offer. Growing demand for the Merino fibre in particular is a fact, demand has actually been building for years. Many in the industry cite the growing use of wool against the skin in sports and outdoor wear as a strong influencer in this growth. This is evidenced with the comparatively strong prices paid for the skirting types over the past seasons. The improved diversity of products that wool is now used in also rates strongly alongside the general improvement in business conditions and the consumer becoming increasingly discerning in their choice of spend.

The surge in levels since the Christmas recess has come about due to the buying interest from mainly India and Italy. Buying from these countries has been competing strongly with China and coincides when most manufacturers stock levels of raw material is at all time lows. All wool users are reporting a steady and rising interest in Australian wool. The very public moves 6 months ago to finer microns for the Chinese government Railway and School uniforms orders has no doubt assisted demand for the long wool super fine sector. As one exporter put it, we and our clients are still in the business and to some extent the price rise was largely expected, just the speed and extent of the rises, and of course the erratic currency, had to be adjusted to.

The trend within the Merino fleece market continued on its established trajectory. The insatiable appetite for the super fine sector of wools finer than 19 micron persisted this week and in fact lifted in intensity as buyers scrambled to lock away some inventory. The relentless competition saw all prices ascend approximately 100ac clean/kg on average. The gains were even greater for the very few bales available of the spinners/best top maker descriptions exhibiting high strength (nkt) and low calculated cvh (co-efficient hauteur) results. The wools of 19 to 20 micron were also keenly sought, but levels increased a more conservative 15 to 25ac clean/kg.

Conversely, all types broader than 20 micron were sold under rather subdued conditions in comparison. Larger volumes were avail-able, and as such, prices were firm initially but drifted slightly to-wards the close as orders were filled. Most types finished the week at levels of 5 to 10ac cheaper but most of the sale lots had been sold at the established higher AUD basis. Given the substantially stronger AUD, this was considered a stronger than expected result as in USD terms, the market was dearer.

Playing it’s part in the passive price in the broader Merino area is the larger volumes of heavy VM (vegetable matter) clips being on offer currently. Many clips from mainly Western NSW and the pastoral areas of South Australia have average VM levels of over 4% in their fleece lines, indicative of the excellent spring conditions of last year. These clips are generally very high quality wools and will achieve excellent top making yields. Not many overseas manufacturers take these types into production, so the discounts of over 100ac is most advantageous to those top makers who can. The resultant cheaper wool top produced is comparatively dampening price across all other types in this micron.

Merino skirtings travelled the same path as their fleece counterparts, with some exceptional gains in the wools finer than 19 micron, but prices rather stagnant in the broader area. All carding types were well sought, but the substantially stronger AUD seemingly restrained this market segment more than any other. The finer comeback/crossbred wools of 25 to 27 micron were well sought and generally gained 25 to 30ac clean/kg for the sale series. 28 micron and broader crossbreds sold on a firm unchanged basis.

Over 51,0000 bales is to be offered next week which is 20%, or almost 9,000 bales, more than what was forecast last Friday. Pullbacks were being seen towards the close of selling this week, but this was under-stood to be mainly currency related as the AUD strengthened significantly against all expectations as a result of the US interest rate in-crease. All three selling centres will be operating.

AUD Commentary - SAW

It was a huge week in global markets, with the U.S announcing a 0.25% rate rise. What surprised markets was the assessment of the U.S economy, a subdued inflation outlook, and only 2 modest rate hikes by year’s end, not the 3 expected. Following this, the AUD leapt higher, hitting .7719, its largest gain in nearly two years, before easing back today, Friday at .7682. While Commodity prices are surging, including Iron Ore (back above $90/tonne) Australia’s unemployment rate rose to 5.9 percent in February and wages growth stalled indicating structural problems in the domestic economy. ANZ Economists also believe the narrowing yield differential between US and Aussie Dollars will see the Aussie under pressure over the next two years ”

Southern Aurora Wool forwards report

A lighter volume week on the forwards but interest levels are rising significantly as the cash market continues into uncharted territory. Forward prices followed the market up with new highs for the spring. August 18.0 traded at 1950 and 19.0 at 1750. Although at a considerable discount to spot the outright prices are attractive hedging level from an historical perspective. Price action was mainly restricted to the spring and centred around 18.0 and 19.0 microns. All participants are anticipating a pull back. The timing and depth of the retracement is the key. Hopefully supply concerns will see any retracement short lived and a based can be formed quickly. The challenge of predicting fair value is getting harder each week. Buyers are not seeing long term demand signals as processors continue a just in time program at these levels.