An epic week at Australian wool auctions as the 2000acent EMI barrier provided next to no resistance to the extremely bullish market forces in motion. This level was easily breached on the opening day, 30th May 2018, to close that day at 2011ac/clean kg. The AWEX (Australian Wool Exchange) EMI (Eastern Market Indicator) closed the week 44ac or 2.22% higher for the week to conclude at a level of 2027ac/clean kg, another all time record for both daily and week ending values. Incredibly this makes the year-on-year comparison 37.7% higher or a 555ac/per clean kg increase.

Topping off a great week for wool producer returns, the EMI when expressed in USD (US Dollars) coincidentally also hit its highest ever level this sale series. The weekly closing figure gained 33usc to help the USD EMI to an all time high of 1533 usc clean/kg, This level easily eclipsed the previous high of 1513usc recorded in the week ending 17th June 2011, when notably the USD v AUD was well over parity at a forex rate of 1.0522 compared to the 0.7565 of today.

This USD EMI figure underscores the fact that exponentially increasing demand is the key price determination factor in play at present and is the undisputable market driver. Chinese purchasing continues unabated, with many exporters declaring the Chinese appetite for wool at present as being “insatiable”. Other usual global destinations for our wool are finding it hard to compete and are being outpriced by Chinese orders daily. Even more impressive is the 41% year on year increase in the US price levels, out performing local AUD returns by 8.3%.

The opening day of selling saw the Merino sector lead the purchasing charge, but the finer comebacks and crossbreds also participated strongly in the fresh price rises. Buyers fought tenaciously for all types and descriptions finer than 28 micron, almost wholly irrespective of quality. The largest gains were around the 21 micron mark on merino fleece which appreciated 40ac plus, but the 26 micron come-back/crossbred types outdid that figure to be 55 to 60ac dearer in just one days selling. General gains of 30 to 35ac were registered on all other types apart from the cardings and broader (29micron plus) crossbred wools, which remained generally unchanged.

There was a stall in price increases on the final day on all of the comeback and crossbred sectors, as those types remained just firm, but the Merino wools were still being hunted and managed further gains of 25 to 30acents across all types. Fremantle did not sell on Thursday for the second week running so all buying focus was centred on the eastern centres. The 17 to 22 micron area closed at the highest and strongest price point of the week. Cumulative gains of 55 to 60ac across the Merino sector was the eventual outcome, whilst comeback and crossbred wools appreciated 25 to 50ac.

The most commonly asked questions relate to the longevity of the current market levels. Wool and particularly Merino is in uncharted territory in two major areas - price and new end use demand. Whereas similar price gains of the past have been almost solely reliant on the end use of traditional knits and woven suits, today’s mod-ern Merino sees it going into a wider range retail sectors. More innovative and premium priced consumer items are now using wool such as sports performance wear, next to skin garments, double-facing fabrics and fake fur alongside the traditional garments. It is this wider range of end uses that can help make the current market potentially sustainable.

Next week sees just Sydney and Melbourne holding auction sales. Around 27,000 bales are scheduled to sell which is not likely to be a quantity that will arrest the current market sentiment.

Wool forwards report - Southern Aurora Markets

Where to now is the question on everyone’s mind. With high wool prices now a topic of mainstream media the conservation has moved to how downstream processors and consumers will absorb the current rise. The continuing dry conditions will cap any concern in over supply. The extent of demand destruction at these levels will be the key to forecasting the likely trend into the spring and into 2019.

Forward markets moved in line with the spot auction this week. Spring levels on all micron rose 60 to 80 cents. The key 21.0 index traded solidly breaking the 2000 cent barrier for September and maintained interest out into the new year with November and December trading at 1950 and February 2019 at 1910. The 19.0 micron index traded out to August 2019 with June at 1955 and August 1950.

Interest waned a little as the week progressed as exporters assessed the increasing risk. We expect forward levels to be stagnant prior to the auction opening next week as exporters look for confirmation of off shore business into the spring.

AUD Commentary - Southern Aurora Markets

The Australian Dollar was buffeted this week by the political winds coming out of Italy and the Economic news from the White House. The AUD started the week on a firm note at .7580 level, before falling sharply mid-week to .7476 on news from Italy that its rumoured to want to withdraw from the E.U possibly triggering a Greek-style debt crisis in the eurozone’s third largest economy. As that threat faded, the Aussie then rallied to a high on Thursday of .7594, before easing Friday to .7554 on the surprise announcement that U.S will introduce tariffs of 25% on steel and 10% on aluminium imports on Mexico, Canada and the European Union.

Australian data releases this week underscored the weak growth currently being experienced as high personal debt levels weigh on economic growth. The OECD yesterday forecast Australia’s growth to accelerate by 2.9% in 2018 and by 3.0% next year, and predicted that the Reserve Bank (RBA) is likely to lifting interest rates by the end of 2018.

Technically the strong rebound in AUD/USD midweek gives the Aussie a neutral bias, and confirms that it remains big-picture wise, contained within a very large side-ways trading pattern. The Aussie key overhead resistance level is still at 0.7688, while key support re-mains at .7411.

AWTA Key Test Data for MAY 2018

The monthly comparisons of Total Weight for May 2018 com-pared with the same period last season show increase 4.5%.

The season progressive comparison of Total Weight for July 2017 to May 2018 compared with the same period last season shows an increase of 1.2% over last year.

AWTA Ltd has tested 339.2 mkg (million kilograms) this season compared with 335.0 mkg for the equivalent period last season.