Australian Wool Sale 1 October 2021 (AWI Commentary)
Australian wool auctions reacted sharply this week to negative news arising from China. Just when we thought we had heard all reasons as to why markets reduce the commodity value, this week revealed a fresh twist. Access to power in China has been vastly reduced and impacted heavily on many wool mills ability to operate securely and predictably, pushing the Australian wool price downwards for the week. A clearance rate of just 77.3% ensued.
The Eastern Market Indicator (EMI) completed the sale series at 1337ac clean/kg which was a 2.3% reduction. The AUD continues to weaken and as such, wool prices expressed in USD fell further than the local AUD prices and a 2.9% fall eventuated seeing the USD EMI close at 963usc clean/kg. This is the lowest USD close since January 2021. The Western Market Indicator (WMI) lost 37ac to close at 1360ac clean/kg with 33% passed-in.
China’s small to medium sized enterprises (SME’s) have been hit hard by that country’s power shortage. Most wool textile mills fit that category. It is believed at least 67% of their provinces have been affected by the electricity-rationing measures in recent weeks. Power rationing is not a new phenomenon, but the increased frequency and magnitude of the cuts is. China’s SME’s account for over 75 percent of jobs, up to 60 percent of GDP and a bit less than half of national tax revenue. They are vital drivers of China’s economy and its stability.
Disappointingly, the pre-sale chatter had most buyers expecting a solid to slightly dearer market this week, prior to the news of some of the major players not being able to participate as normal at auction.
Merino fleece types were the hardest hit of all types in the market with some widely variable results across micron brackets occurring. General losses of 30 to 60ac were posted, with the 17.5 to 18.5micron area least affected. Skirtings fell evenly on both days but 50ac was wiped from values by the close. Wools from crossbreds dropped 25ac whilst cardings held values best but a fall of 10ac was still recorded.
The major European top making purchasing dropped away somewhat but Australia’s main trading exporter and China’s largest top maker combined to see them top buyers lists. Outstanding forward contracts needing completion from other exporters as well as a bit of sub continent buying was also apparent in the auction rooms.
The leading Italian operator was once more dominant at auction and the strength of their purchasing was enough to ensure the better specified, stylish wools and accredited wools of 16 to 19 micron held their premium pricing, although some weaker prices were apparent on lots finer than 16.50 micron.
Next week has 42,000 bales being offered at a Wednesday/Thursday sale.