Australian Wool Supply Strains As Chinese Demand Soars

Market News

Australian Wool Supply Strains As Chinese Demand Soars

Orders for Chinese government uniforms are driving fine wool prices on the Australian Wool Exchange (AWEX), while a supply drought of bales sparks a market rally. The Eastern Market Indicator (EMI) closed at 1318 cents per kilogram last week, up 18c on the prior week.

Contraction in supply due to wet conditions delaying shearing and hindering the transportation of bales also impacted supply, and in turn uplifted prices, which resulted in the smallest national offering for an October selling week in AWEX's history with less than 32,000 bales offered.

Australian Wool Testing Authority (AWTA) general manager Ian Ashman said the organisation was 30% down on receivals for the month. He said AWTA expect to receive about 1700 presale lots for yield and micron testing per day, however were averaging about 1200.

"With the heavy rains in the latter part of September we started to see the slowdown and this has continued into October, especially for Victoria and NSW," Ashman said. "AWTA test receivals are well down on expectations this month. No doubt when things dry out it will come with a rush."

The new orders for railways, police and corporate uniforms in China chased 18.5 micron and finer, which resulted in a market spike of 45 to 50 cents increase to the previous sale.

"Over recent years, those uniforms have been 21-22.5 micron because the government has tried to rein in spending to consolidate the economy so they weren't buying the fine wool," Techwool Trading export manager Josh Lamb said. "This year they've gone back to a more traditional pattern and chasing that 16-19.5 micron.

"If China is buying finer fabric uniforms now it means the government has had a slight change of policy with spending which is good longer term but where this will be tested is when more wool comes onto the market later in the season."

Lamb said the uniform market in China was a large and important user of Australian wool.

He said the market began to reflect the orders in June which began closing the price gap for finer microns for the first time in four years. "You've got these renewed orders for uniform fabrics in China and behind that you've got reasonable demand out of America for similar fine wool fabric so there are two levels of demand which is helping the market nicely at the moment," Lamb said.

Supporting the fine wool market attention is a contraction in supply with AWTA testing statistics suggesting a shift away from superfine wool, 18.5 microns and finer, towards medium Merino wool, 20-23 microns.

In the first quarter of this season, the weight of superfine wool tested was down by 3.8% while the weight of medium Merino wool tested was up by 7.8%. Elders southern wool sales manager Lachie Brown said the forecast for the fine wool market looked positive. "We've seen that basis for fine wools compared to medium wools widen which hasn't occurred since 2011, and it needed to happen," Mr Brown said.

"It is a combination of increased demand from China for those finer wools and the lower supply. The fact there is less fine wool year on year is starting to impact prices."