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Beyond the Bale : December 2016
For me, 2016 has brought some big surprises in the wool industry. Regrettably the second biggest top making mill in China went bankrupt – it had been in business 16 years and produced 10,000 mt tops per year. We also saw one of the top 10 buyers at Australian auction close their business after running for about 10 months. It is a true reflection of how hard both wool importers and exporters are struggling to make a living in our industry. On a positive note, at the beginning of 2016 I would not have imagined that T55FNF1 (21 micron Merino fleece) would go above USD11.00/kg CIF2 again in the middle of the year; nor would I have thought that 18.5 micron greasy wool for carbonising would reach USD10.50/kg CIF at auction. All these high price levels point to a good calendar year for Merino of all descriptions, and I think that Merinos will continue to sell well due to global low stocks and good demand. However, it has been a very tough and painful year for all crossbred mills and traders, no matter if it is long for combing or short for carding. Right now, the USD prices of crossbreds such as T424FNF1 (28.8 micron crossbred fleece) have reached the low level of early 2011, so some big companies have started to buy for stocks with no real orders in hand. Chinese wool importers take the biggest risks in respect of time than any other players in the industry. After they confirm their purchases, it will be at least 50 days until the greasy wool will reach them in China from Australia. When they try to sell the wool tops, it is two months later. During those two months, anything could happen. I remember clearly at the IWTO conference in May 2015, my clients booked fine open top (knitwear) greasy with me, predicting a China-based wool agent Lizzy Shen provides in this article, written especially for Beyond the Bale, her frank and informative insights into the Chinese wool industry, from an insider’s perspective. As a wool agent, Lizzy represents many Australian exporters and constantly assists them to make substantial sales each year into Chinese textile markets. She is extremely well respected throughout the wool supply chain both in Australia and China. AN INSIDER’S VIEW ON CHINA 52 MARKET INTELLIGENCE Wool agent Lizzy Shen AWI NOTES 1 T55FNF / T424FNF etc are probably familiar terms to our middle to older aged woolgrowers from the days of the AWC scheme types. This system pre-dates the current AWEX ID typing. China in general still uses the old AWC scheme type descriptors to this day when ordering wool from Australia. 2 CIF means cost of insurance and freight. Most wool is sold under these terms into China. In China the only price that is generally relevant to them when importing is USD CIF, or the less used AUD CIF. Greasy prices received by woolgrowers are completely foreign to China users. 3 RMB means renminbi, the official currency of the People's Republic of China. The yuan (CNY) is the basic unit of the renminbi. profit of 3RMB15/kg, but when they finally sold the tops in August, they lost RMB5/ kg. After experiencing so many market fluctuations, importers are aware that nothing is for sure until the products are sold. Furthermore, if you think about the continual RMB devaluation throughout the whole year (-4% until early November), it is quite hard for any Chinese wool importer to make a good profit as most of them pay for the wool 90 days after the wool is shipped from Australia. Importers only tend to want to buy when others are buying. If others are not buying, they feel like waiting with the others, hoping for a lower price. Because of this sentiment, we have seen Chinese importers act in a similar manner. They can all be quiet for one or two weeks, then they rush to buy all at once. I understand this is not ideal for exporters, and even importers. I have been trying to stimulate the clients to buy consistently each week, but many of them prefer to catch the low point, like what they try to do on the stock market. China demand in wool is mixed for different categories. No doubt, crossbreds is not good due to large stocks in tops, yarns and fabrics carried from last season, and we still have not seen any signs of improvement yet. Ever since T55FNF went above USD10.00/ kg CIF, most greasy wool traders, and top, yarn and fabric makers didn't want to hold any extra stocks, so there have been hardly any stocks since April 2016. All the mills have been operating in a hand to mouth manner, including all the big and medium top makers. This style of purchase will keep going unless we see T55FNF go below USD10.00/kg CIF, if it does. Carding demand was so-so before August. Then we saw it booming in August to October. By mid-October, all the Merino carbonised wool was sold and all the carbonising mills are looking for wool; for example, types like good colour, 18.5 micron, two-inch in greasy length went up USD1/kg within one month after the Nanjing Wool Conference. Fine cardings will receive fairly good demand in 2017 due to barely no stocks in China and products are going finer and higher quality year after year.
In the Shops - March 2017