Weekly Market Wrap
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With Adrian Field, Melbourne
Trading Manager
August 6, 2004
Little change after recess
THE first wool sales of the new selling season commenced
this week following a three-week recess and, although the
market weakened slightly, there were some positive movements.
With only Melbourne and Fremantle selling this week, the
eastern market indicator struggled to maintain its previous
level of 801 cents per kilogram. Prices drifted downward slightly
before finishing at 799c/kg.
Wools of 19.5 micron and finer strengthened slightly, broad
Merino types fell about 10c/kg, crossbreds were generally
5c/kg up, and cardings finished on a firm note after a poor
start to the week.
Passed-in rates were fairly low at just over 12 per cent.
Although the Australian dollar fell 2 per cent during the
break from sales, it had little effect on the market.
The price gap between microns widened a little this week,
which is again good news for fine wool producers but not so
good for broad wool growers.
The market was a little concerning heading into an offering
of 80,000 bales next week. But on the other hand, it may be
due to this reason (large offering next week) that it was
subdued. Some companies often show caution knowing that large
volumes of wool are on offer.
This week's result is likely to be indicative of where wool
demand is headed for the next six months.
Finer wools will be most keenly sought-after and prices should
remain solid considering demand for them is currently strong.
Wools of 23 micron and broader will struggle to gain any
real momentum considering demand is slightly weaker.
This market activity is common this time of year with most
of Europe on holidays for the month of August.
Outlook
The market may struggle early next week before a slight recovery.
Whilst the Australian dollar is around the 70 US cents level,
the indicator should remain at the 800c/kg mark.
If the dollar falls to 65 US cents we could see an indicator
of about 850c/kg, and, likewise, if the currency heads to
75 US cents we could see an indicator of around the 750c/kg
mark.
In this current era, currency (in US dollar terms) appears
to play a major role in determining where the market is headed.
This has been the case 95 per cent of the time for the past
two years.
As an example, in October 2002 the currency was around 55
US cents and the indicator was at 1200c/kg. In January 2004
the currency was at 78 US cents and the indictor was at 760c/kg.
While supply and demand is probably the biggest factor influencing
price, currency certainly is close behind.
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