Another tough week at the Australian wool auction sales. Prices achieved on almost all of the selection put up for sale were cheaper to varying degrees, apart from the cardings that managed to hold firm against the negative trend. A strengthening Australian dollar versus all major trading currencies used in wool trading placed downward pressure on the market as did the lack of ability of local and overseas buyers to effect delivery in a timely manner into the Chinese mills in the new year. 

The AWEX (Australian Wool Exchange) EMI (Eastern Market indicator) lost 38ac or 2.5%, of which 1.1% was currency alone, and closed at 1492ac clean/kg. This closing basis is the lowest since the first week of September earlier in the season. Due to forex rates, the USD (US dollar) EMI fell away less by 1.4% or 15usc to 1020usc clean/kg. 

The issue effecting the immediate spot auction sales is the timing of large volumes coming onto the market in an environment where normal delivery capabilities for overseas buyers and local exporters are severely hampered. This is due to the Chinese New Year falling on the 25th January next year. This week was in effect the last pre-Christmas opportunity to ship in time before the Chinese mills close down in their New Year shutdown. In a nut shell, we are offering the highest volumes seen in the entire first half of the season into the most inopportune time possible for exporters and mills. 

The simple breakdown is effectively a two to four week additional financing period required for exporters for any wool purchased destined for China in the next two sale weeks if the client doesn't call for delivery. One week for shipment delay due to Christmas break and up to two weeks for the shutdown from 25th January. Margins for wool export are extremely competitive at the best of times, so this situation is causing some angst amongst the trade, particularly given the very hand to mouth modus operandi that the majority of the trade is utilizing.

Merino fleece types finer than 18.5 micron were the hardest hit this week with losses of 50 to 60ac being recorded. The 19 to 22 micron sector was less affected but 30ac was still eliminated from values. All skirtings lost 40ac and crossbred types were25ac lower. Cardings were the only bright spot and basically held their ground and remained firm unchanged.  As prices lowered, passed in rates increased exponentially and by week’s end a national figure of 19.9% failed to meet the grower seller reserves.

Next week now has almost 48,500 bales rostered for sale. Just last Friday that figure was around 39,500 so an additional 23% is now being offered. The last sale week forecast in a fortnight’s time has also grown by over 2000 bales or 6% to just short of 40,000 bales. 

AWTA November 2019 Key Test Data

The monthly comparisons of total weight tested for the month of November 2019 compared with the same period last season was 0.9% less wool tested.

The progressive comparison of total weight tested for July 2019 to November 2019 compared with the same period last season showed 8.5% less wool was tested. 

AWTA Ltd has tested 127.5 mkg (million kilograms) this season compared with  139.4 mkg for the equivalent period last season. 

Based on this, the current  best guess for 2019/20 volume of wool tested looks like being around 291 m/kg maximum which lines up pretty well with the AWPFC figure of 272m/kg or 9.2% reduction.  

Forwards Commentary - Southern Aurora (SA) Markets

By Mike Avery. 

The forward market finally fatigued this week as forward buyers finally relinquished their support into the first quarter. For the last month exporters have bid at cash for January through to March. Less than 100 tons traded for the month with closing prices at 1780 for 19.0 and 1730 for 21.0 micron.

With all micron qualities losing over a dollar during the month exporters have been hampered by the lack of forward offers. Off shore interest has been tepid and any eagerness to secure stocks for deliver prior to the Chinese New Year has gone off the boil.

It is difficult to see how this situation will change going into the last two weeks of sales before the Christmas recess. The only hope being that the lesson of the last twelve months is the auction and forward markets have been predicably unpredictable.

In the absence of the spot market finding much needed support it is unlikely that exporters will bid strongly for the late summer and early autumn even as supply concerns continue to overhang the market.

Grower offers into that period around cash (19.0 1710 and 21.0 1675) could attract the attention of exporters and processors looking to secure some supply.