Another wild week at the Australian wool auctions. Prices were substantially dearer across the entire offering as news arising from the Nanjing Wool Market conference, the largest wool trade gathering annually, had forecast these positive gain.

Whilst exporters butted heads with each other and the Chinese users for their share of the available business, the mood of the conference was rather confusing. Nearly all acknowledged the state of the global economy had seen demand decay and that the Trump administration had killed any sort of remaining confidence. But, the business around was enough in the tight supply environment to see some machinery demand return at least.

In a nutshell, manufacturers were looking to fill the near empty greasy wool section of the wool pipeline, but warnings of demand remaining at low levels remain in play. The weaker prices of the previous month or so had seen some business written and some wool was needed at the lower levels to fulfil those orders and average some dear stocks through those orders.

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) gained a further 67ac this week which was near enough to 4.4% to close at 1609ac clean/kg. In US Dollar (USD) terms the USD EMI gained 3.8% or 39usc to close the week at 1086usc clean/kg. Once again for those buying using the USD, they were assisted by the AUD falling around 0.6% against that currency.

Australian auction purchase lists featured the largest locally based trading exporters, particularly on the Merino fleece and cross-bred sectors. Their activity was quite dominating as the top four took 60% between them of the sold wool on these types. Processors took to the skirtings and cardings sector to get volume and both those segments were led by a European top maker and a dual local and Chinese processor respectively.

Merino fleece demand was firmly split into two this week again, as buyers focussed more on wools broader than 18.5 micron. The intense competition forced these types 100ac dearer. The finer types were by no means neglected and values increased to the order of 30 to 50ac, with the better specified lots receiving of the larger end of those gains. Skirtings crossbreds and cardings all gained similarly and were a general 50 to 60ac dearer.

The large jump in prices available at auction this week saw pass in rates surprisingly high at around 8%. With another 9% of the original quantity withdrawn prior to auction, it appears grower sellers are still not unanimously happy with current levels.

Significant advice received at the conference from the Chinese factories and yarn makers pointed towards the need from grower suppliers for “more 19.5 micron and 21 micron Merino please! In fact some 22.6micron as well! There is too much super fine Merino wool! “ Some users are being forced to blend finer Merino with Crossbred in order to achieve the “thicker” yarns required and many warn of an inevitable bad image arising from this practice from consumers.

The key message from the Nanjing Wool Market Conference is no doubt that the Chinese domestic consumer is now the pre eminent customer of Australian wool. Trends in China retail must be closely monitored and an agile manufacturing sector is required to cater for that ever-changing and quickly shifting whims of those consumers. Demand can shift from type to type but also in price radically as all parties adjust to those changes.

The wool supply chain has shortened dramatically over the years from both the logistics and manufacturing parties whom have embraced technological change. It is now relatively easy to have wool shorn on farm in Australia and somebody wearing a garment from that sheep within less than 2 months.

To reinforce last week’s comment, all sections of the trade, from exporter to garment maker are screaming out for a more stable, or rather less volatile greasy wool, wool top and yarn market. History tells us though, that this is the most unlikely of results. Hopefully there will not be any casualties from the latest unprecedented price movements being felt across all sections of the wool industry. In particular the top making sector which traditionally has the most exposure to devalued wool prices.

41,000 bales are being offered next week, which is a massive 49% more quantity than what was eventually offered this week. If current demand needs to be tested, then this volume should do it.

AUD Commentary—Southern Aurora (SA) Markets

The strength of the USD and next Tuesday’s almost certain RBA Rate Cut had the Australian Dollar contained to a fairly tight range this week, opening on Monday at .6780 then lifting into Tuesday’s high of .6808 before easing to Thursday’s low of .6738 and edging higher today (Friday) to .6748. Global markets remain on edge over global events.

Technically the Aussie Dollar remains caught within a major down-trend, however over the last 8 weeks the currency has traded mostly sideways with buying support evident at .6700 level and selling around .6900. The bias remains to the downside and would expect a re-test of support in the coming weeks.