Stronger currency fails to dent momentum of wool price rise
THE wool market continued its positive theme this week with a rise of 39 cents or 4.4%.
A stronger currency failed to dent the momentum and in USD terms the Australian market closed 52 USC higher for the week.
A single day offering in Fremantle showed the largest gains as it played catch up from to eastern selling centre rises from last Thursday.
Overall the national market is evenly balanced with just a few cents separating the closing quotes in all three centres.
Fine wools continue to head towards a more normal premium with the basis separating 18.5 and 21micron having risen from its autumnal low of circa 50 cents to a more respectable 123 cents this week.
Reaction from overseas markets was relatively positive this week with evidence of some large orders coming onto the market from spinners who had previously held back waiting for either lower prices or who have simply been waiting for more certainty from downstream.
Whether there is enough prompt stock of the correct quality and at the correct price is now a question open to negotiation.
Wool in general is priced attractively for the downstream industry particularly at the finer end of the clip however an increase in demand given current supply patterns should see prices increase which is why many participants are starting to move now.
As a commodity wool is subject to the usual forces of supply and demand and these forces often create volatility.
Wool in recent years has been overtaken in the volatility stakes by such commodities as natural gas, cotton and iron ore. Some in the industry look to price relativities between wool and such fibres as cotton in order to predict future price movements for wool.
This week CBA has reviewed recent developments in the global cotton market and have subsequently revised their price forecasts lower because of subdued demand and record high global cotton inventories.
Global cotton prices rose above USc220/lb in early 2011 as a result of extreme supply tightness and speculative exuberance - many day traders jumped onto the cotton futures bandwagon at that time pushing prices to these high levels.
However prices have since dropped back to USc76.80/lb, closer to the 1990-2010 average of USc62.50/lb.
Current stocks of cotton are approaching record levels at a time when demand is expected to continue to remain subdued.
Conversely wool is facing restricted supply with current seasonal offerings to date some 10.8% less than the same period last year, and allowing for larger offerings in forthcoming weeks there is little chance of supply reaching the volume of last year.
So while cotton prices are expected to flounder in the face of large supply, this is unlikely to affect the wool industry. Cotton is not often a direct substitute for wool whereas polyester and other synthetics can replace a percentage of wool in many garments when wool becomes expensive.
Synthetic prices are predicted to remain relatively stable in coming months which should not hamper the rise of wool prices.