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Beyond the Bale : June 2017
What is the consequence of higher wool prices? Woolgrowers are receiving better returns and profits. On the other hand, the wool users or importers are having a tough time in financial terms. They need more money to buy the same quantity of wool, but where does the extra money come from? AN INSIDER’S VIEW ON CHINA 58 MARKET INTELLIGENCE China-based wool agent Lizzy Shen With the ever-rising prices of real estate in China during the past fifteen years, all capital tends to be invested in property, with manufacturing ignored. Although the Chinese government encourages the banks to support manufacturing industry, banks are not interested in expanding loans to any kind of textile mills. Indeed, thank goodness if they don’t cut off the previous year’s loan figure. With this background, we see wool importers opening the letter of credit (L/C) to the wool exporters slower than the same time last year. The general view is there are more delays. For a single mill which buys around 5,000 clean tons of Australian greasy wool per year, I can see hardly any of their L/C reach a wool exporter before the vessel cut-off date. While they were on time one year ago, there is now, in effect, at least a two-week delay. If a wool exporter cannot receive the L/C in time, he will be short of finance to buy wool at auction. Sometimes a delayed L/C of USD500K can prevent a wool exporter from buying its normal quantity. This is the situation we are facing. Many mills are short of both L/C facilities and cash. It will not improve in the short term because banks will never expand their loans to the textile industry which is often called a “sunset industry” here in China. June is a traditional month when all banks are tight in liquidity for settling accounts. All mills are busy producing during July and August, which are the hottest months in temperature. It is only when the weather turns cold from late October, when garments start to sell, that payments will gradually come back. The buying of wool for railway uniforms is complete. There are now talks about uniforms for the police, China Mobile and other areas using 50-70% wool. 21.0 micron plays the main role. Almost all uniforms are dark blue so dark fibre contamination has less effect; hence alternative wool fibre origins can be used including China domestic. Now that 19.5FNF is USD2/kg higher than 21.0FNF, we see 19.5 micron selling slower than six months ago. Some fabric makers are using 20.0 micron instead of 19.5 micron since their fabric buyers would only follow about a third of the price rise. Fabric prices normally stay stable regardless of whether greasy wool prices go up or down. I cannot see 18.0 micron and finer fleece going up in price in the short and mid term. The demand for superfine fleece is scarce now and although there is better demand for 52mmh (mm hauteur = length after top making) types, some merchants have taken in a good quantity of stocks since last October, trying to sell either wool tops or greasy in the China domestic market. Throughout this whole season, 52mmh and shorter superfines have always been in better demand than full fleece. My guess is this trend will keep going in the new season. A lot of the shorter superfines are used to blend with skin wool or any origin coarse wool to make open tops of 19.5-17.5 micron, which are the main types in demand for cardings. Unfortunately, we have not seen a real improvement in crossbred demand in China. Some Merino users usually buy a small quantity of 26.8 and finer xbreds, so the price of that part of xbreds has been lifted up along with Merino price rises. Users of coarser and real xbreds are mostly blended with synthetic fibres, enjoying good and consistent business. Sometimes when they find 32.2 or 36.0 offers really low, they bid me 20USC/kg down for investment only. Those prices are definitely in the bottom area now according to my records of 28-year sold prices. This past summer in China (July and August), fake fur product using 100% Australian wool pushed the prices of 21.0 high, which also brought up the prices of neighbouring microns as some buyers allow for big micron ranges. Will it happen again? The majority said no. The sales of these garments were not as good as expected, so all related producers are holding stocks of garments, fabrics or yarns. The wool usage of that particular fabric will be half of last season at most. There is no comparison with double face which is widely accepted all over the country, from the very south to very north. The oddment market will stay good as I see consistent demand and buying interest from fabric makers, carbonizing mills to small dealers. The only reason I can find for its recent lower USD sold prices is the lower exchange rate of AUD. By the way, more end users have found value in high VM greasy for carbonizing - average VM above 20% is workable and they are happy with the final result. Chinese young people, 16-35 years old, are the main internet shoppers. While shopping on internet, they care about style, colour, price, ignoring the material type in the garments. After 10-20 years, they will become real middle class and strong spenders. I believe by that time, they will care more about the content in the cloth and therefore wool will win in the long term in the consumer market in China.