The AWEX EMI closed on 1823c – down 41c at auction sales in Australia this week. The offering of 28,140 bales was met with more buyer apprehension, as trading condition slowly worsened in our major markets. The 21.3% pass in rate varied wildly across the regions, with Sydney passing in 13.7% v Melbourne – 17.5% and (the pass in kings) Fremantle, where 40.2% of the offering was passed (46.3% of the fleece).
Buyers approached the week cautiously with little or no business being written after last week’s softer market. Exporters have been reporting the worst business conditions for 10-15 years as China is experiencing a slowing economy, and compounded by an increasing trade tariffs from the US Government further haunting their future economic outlook. Our other major market for Australian wool product is Europe and the unresolved Brexit conundrum that has many scratching their heads to work out – what it is and more so – what do they do to move past the uncertainty?
Merino Fleece was the worst affected category this week, with falls measured between 50-85c across the 17-21 MPG’s. The falls were concentrated to the finer end with lower yielding and poor style lots with the best style and specified attracting better competition.
Merino Skirtings followed the lead of their fleecy relatives for most of the week, however they staged a small recovery in the last hours of the sale.
Crossbreds were largely unaffected in Sydney but washed off 20-25c in Melbourne.
Cardings continued their negative trajectory with a loss of 20c average across the three centres.
Forward Price Report from Michael Avery (Southern Aurora Wool): The forward market traded down again this week in sympathy with the spot auction. Fine wool prices dropped to year lows with the 19.0 micron dropping to levels of last May. 21.0 microns dropped to the previous season low of November. The market drivers remain weak. The demand destruction bought on by record prices of the last four years has been exacerbated by continued friction between USA and China and anticipated poor global growth.
The sudden price realignment has caught most participants by surprise as tight, drought induced, supply was thought to keep prices relatively stable. Forward levels of the last few weeks have indicated a weakening bias into the spring but off higher base levels. Spring 2019 has fallen but not to the degree of the spot market. The physical market has fallen 150c since early May while Spring forward levels are back 80 to 100c. 19.0 microns traded between 2025c and 2060c in August and September. 21.0 micron traded out to October between 1980c and 2030c.
We expect trading next week to again focus on the spring and early summer with exporters looking to get limited cover around the 2000c level.
Commentary: Next week’s offering of 19,745 bales will have little or no influence on price as the quality of the offering is largely outside the standard specifications of our key processing partners in China, Italy and India. As the offering once again falls below 20,000 bales at best, we would hope for the EMI to stay within 10c of this week’s levels. The positive offset is there is no stocks anywhere in the pipeline. Brokers report historically low levels of held wool, and I am pretty sure the same would be said about on farm stock. Processors have been buying for just in time delivery and we face the lowest wool production forecast in 100 years. There are certainly more questions than answers ahead of us in the short term, but I am confident a new base price level will be established sooner than later. ~ Marty Moses