The return of a positive trend to Australian wool auction markets accelerated significantly during this week’s sales. In a staggering week of good fortune for wool growers who were selling, most Merino wool types on offer were verging on a full 100ac clean/kg dearer by the close of selling, with some individual lots advancing 150 to 200ac. Crossbreds were by no means neglected either, as these wools all headed 50 to 70 ac higher. The AWEX EMI (Australian Wool Exchange- Eastern Market Indicator) gained 80ac clean/kg to close at 1818ac clean/kg, equalling the record level set in January of this year.

Whilst new demand from China was the key driver behind this week’s push in the market, our AUD (Australian dollar) exchange rate against all major currencies was also a factor, particularly in USD (US Dollars). The USD strengthened relative to the Australian dollar by nearly 3%. The result was the EMI when expressed in USD rose by just 1.6% in comparison with the 4.6% rise in the AUD EMI. This situation certainly assisted those using USD to buy wool to keep in touch with the rising costs in AUD of wool at auction. The USD EMI con-cluded the week at 1420usc clean kg, a gain of 22usc for the week.

This week’s rise was widely expected amongst the trade, although once again the velocity and magnitude of the gains were not forecast and surprised most. It was common knowledge around the show floors pre-sale that new business had been written and indeed many orders remained unfulfilled, as exporters were reticent to expose themselves to an open short position. As the week progressed, and buyers stocks moved back into positive territory, some profit taking did occur and new orders were concluded mid week, somewhat satisfying prompt demands.

In a good offering ex Sydney of Super fine and ultra fine types, the price rises were in many cases extraordinary. For those ultra fine types finer than 16.5 micron, gains of 200ac were commonplace. This has led these wools to be up to 350ac clean/kg dearer over the past two weeks. All other super fine wools (16.6 to 18.5mic) showed gains of around the 100ac mark with the spinners and best top making types up to 150ac dearer.

In general, the Merino fleece markets appreciated by around 60ac for all wools 18.6 to 20.2 micron, whilst a diminishing selection of broader than 20.2mic types went to 100ac dearer levels. Once again it was the FNF (less than 1%vm) types being chased the hardest. Heavier VM types sold well but gains were not as much as the above quoted movements. Skirtings and cardings were dearer to similar amounts as the fleece, whilst crossbred and comeback types rushed to levels of 50 to 70ac higher for the week.

Towards the close, the steam seemed to go out of the market and price gains were restricted to more manageable numbers. Sydney and Fremantle continued by 10 or 20ac but the larger offerings available ex Melbourne saw some wools ease back, as many industry participants showed concern of the quickly escalating levels. As one prominent trade member stated, the market has once again moved “way too spritely”. Of most importance though was that the better wools across all wool types were still being well sought after and it was only the average to inferior descriptions and lots showing hard to place test measurements that displayed this nervousness.

The vast improvement in market sentiment has pushed prices to levels to a position where many trade participants are now left to ponder their next moves. Operations were clear, consistent and similar amongst buyers this series, but variable strategies are now likely over coming weeks. The strong price rises have seen an 8% lift in rostered quantities next week to over 43,000 bales , but the following two weeks rostered sales have fallen by a similar amount. Chinese New Year commences next week on Friday 16th February and the associated Spring Festival holiday will last for a week.

AUD Commentary - SA Markets

The trigger for the turmoil in global markets is a clear lift in inflationary pressures in the U.S. Against this backdrop, the Aussie (AUD) tumbled to a six week low, falling from Monday’s high of .7954 to a low on Thursday of .7765, and recovering a little today, Friday at .7785. Technically the bias in Aussie remains to the downside, however in the big picture it is still contained within a major sideways trading pattern. On the daily chart a sustained trading below the 50 day moving average, suggests that the rise from 0.7500 has been completed, and the first support target is .7715, then .7640 then .7500. Nonetheless a break back above 7920 resistance could see the Aussie rally back to retest the high of 8135.

SA Markets wool forwards report

Anticipation of a strong spot auction on the back of a weak Aussie Dollar saw the forwards trade strongly to start the week. Autumn and next spring traded well in modest volumes. Highs where set on 18.0 in May (2245), 19.0 in March (2150), 20.0 in March (1970) and 21.0 in April at 1780. The Spring levels, albeit at discounts to the front months returned historical highs in such a volatile market. 18.0 (2120) 19.0 (1920) 21.0 (1620). Volumes fell off as the week progressed with buyers unable to justify the gains through off shore orders and growers looking to maximise the surge in the spot price.

As highlighted last week the current spot market and to a lesser extent the forwards are being affected by cash flow issues, supply and the erratic AUD. The volatile nature of the stock market and concerns of rising interest rates has seen traders looking to de risk. The ebbs and flows of the global financial sector will continue to impact the wool market. We anticipate unstable conditions to continue with swings based on supply and cash constraints. With Chinese New Year next week we may see a short term demand reduction.