Weekly Market Wrap

Adrian Field Trading Manager

With Adrian Field, Melbourne
Assistant Trading Manager

May 2, 2003

Post-Easter hangover for wool

WE witnessed some record falls in the Australian wool market at sales following the Easter break.

The southern indicator fell by 121 cents per kilogram on the first day of sales, apparently the largest one-day fall on record.

After an initial allocation of more than 91,000 bales Australia-wide for the sales, about 24,000 were withdrawn, and of the remaining 66,700 bales offered only 29,044 were sold, equating to a 56 per cent pass-in rate.

Many in the industry believed the market sentiment prior to Easter was subdued, and considering this fact was combined with one of the largest offerings in quite some time, there were no great surprises at the market result.

There is not enough business and interest to be able to absorb such wool quantities in the one hit. Demand has been poor for some time, and the demand that has been there to sustain the recent solid market levels has largely been driven by processors for machinery requirements.

The fact the market recovered only slightly in the final two days of the sales, even after most of the initial offering was either withdrawn or passed in, further suggests that current buying activity is sluggish.

The market levels are not expected to improve significantly considering China, the biggest importer of Australian wool, is now facing economic difficulties due to the SARS epidemic.

In looking at current and past market levels for the southern indicator, prices are now similar to those at the same time last year. In the past 18 months the indicator has been as low as 650c/kg in November 2001 and as high as 1230c/kg in October 2002. The market appeared to be most consistent between March and September 2002, where it remained around the 900-950c/kg mark, similar to where it is now.

There has been much discussion and concern regarding the lack of wool volumes on offer heading into the later part of the financial year, however with the continual high withdrawal and pass-in rates, store stocks are climbing and we may find there could be a steady flow of moderate wool volumes onto the market during this period. The volumes offered over the next few months largely depend on whether or not growers are prepared to sell at current levels.

As outlined above, there have clearly been some major fluctuations in the wool market over the past 18 months, and some growers may be thinking they should be able to achieve far better prices than those currently being offered. But at the same time, they should also recognise how low prices can drop to, which was not that long ago.

The industry is enduring yet another complex set of circumstances, and there will no doubt be considerable change over the coming 6-12 months.

Many traditional wool processors in traditional wool processing countries are currently finding it hard to survive let alone prosper during these very tough and competitive economic times. At the end of the day, it comes down to the costs involved in getting raw wool to the final article, and many companies can no longer compete.

Finally, the currency still plays an important role, particularly when most other factors stabilise. Our currency has been quite strong in recent weeks, making prices look less attractive in US terms. This is becoming more significant as our dollar continues to strengthen.

It appears the wool market should stabilise at around current levels for the short-term, but the prices achieved will depend upon any one or a combination of the above factors.

About 35,000 bales are rostered for this week's sales, which should help generate some consistency.

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