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Beyond the Bale : March 2014
AWI’S BUSINESS INTELLIGENCE AWI provides weekly market reports and monthly electronic newsletters, which can be subscribed to by sending through your email address to email@example.com or by direct download from the AWI website at www.wool.com/ marketintelligence These reports provide weekly commentary on the wool auction market from AWI trade specialists and monthly insights into economic, finance and trade issues affecting global demand for wool, and what this means for the Australian wool industry. Welcome to our first Beyond the Bale market intelligence report. These will become a regular feature and, given the quarterly frequency of the magazine, we will review the year-to-date and look forward over the coming months. THE YEAR IN REVIEW So far, 2013/14 has been a year of contrasting fortunes for Australia’s woolgrowers. Drought conditions have intensified in many area of Eastern Australia, with severe rainfall deficits developing over the past 16 months across Queensland, central-northern NSW, and north-eastern South Australia. While recent general rain has helped, the reality is that in many wool-growing areas, sheep are carrying drought-affected wool, which is now flowing into the wool selling system in increasing volumes. An insight can be gained from AWTA wool test data, where year-to-date volumes tested in the 19.6-24.5 micron range has fallen by 15% y-o-y, whereas volumes finer than 19.6 have increased by 13%. The price story has been a mixed bag as well – cardings and coarser types have performed extremely well, whereas the finer fleece market has been much softer. For the period to the end of January 2014, the EMI has averaged above $10.80, which while still historically strong at the 79 percentile level for the period since the demise of the wool stockpile in late 2001, it has been weaker in USD terms. Looking at our key international markets: • The US economy, the world’s largest with US$11.4 trillion spent on consumer products and services last year, has continued its recovery path – with 2.3% growth for the last quarter, and 1.8% growth y-o-y for spend on clothing. • China, our largest wool trade partner, grew its economy by 7.3%, with clothing expenditure up 12.9%, textile and garment exports up 11.4% y-o -y, and wool imports for the January–November 2013 period up 16% overall (imports from Australia up 8%). • The Eurozone, however, remains stuck in a low growth pattern, with some notable economies starting to grow (eg the UK grew by 2.4%). THE OUTLOOK Looking ahead locally: • Supply will be tight – our projections are for drought-induced tightening of supply – with 2013/14 greasy production potentially finishing the year close to 340 m kgs (down from 352 m kgs for 2012/13). MLA’s latest forecast for 2014/15 opening sheep numbers is for a 72 million head flock, which due to the very close correlation between opening numbers and wool production, suggests greasy production could remain around 340 m kgs. • After 12 months of dramatic fluctuations which have impacted on those involved in the wool export trade, the AU:US dollar exchange rate should have a more stable 12 months, with slowing softening to end the year around 84 cents. Internationally, 2014 should be a better year for wool – with total clothing market demand (consumer spend on clothing) expected to increase in all our major end- user markets; the most notable growths will occur in the USA (2.8% or US$9 billion) and China (2.8% or US$29 billion). Market Intelligence 50 September 2010 BEYOND THE BALE 50 350 300 250 200 150 100 50 2012 2013 2014(f) *All numeric data in this report was sourced from Euromonitor International (Feb 2014). The quarterly data was seasonally adjusted and the yearly data used fixed 2013 US exchange rates. 0 Consumer expenditure on clothing March 2014 BEYOND THE BALE AWI Market Intelligence – January 2014 report Happy New Year! In our first newsletter for 2014, we investigate the reason behind the price lift in the Cardings m arket, andso m e international tradedevelop m ent s. Cardings m arket – sourceofthe strength TheAustralian wool auctions startedthe New Year with 107,518 baleson offer over thefirst 2 weeks, and finished the fortnight with an E M I of $11.28 in AUD, or $9.92 in USD. While there was abundant supply of M erino Carding wool types, this proved no obstacle for the m arket to digest, with buyerscontinuing to co m pete strongly for those Cardingsonoffer. In fact, M erino cardings are currently trading at a historically high levels against equivalent dia m eter fleece types, with the AWEX Carding indicator ( m ostly 19, 20, and 21 M eri no cardings) finishing the fortnight at $7.31 USD, which is around 64% of the value of equivalent M erino fleece wool. The following chart shows the average monthly M erino Fleece prices (19 – 21 m ic ro ns) overlaid withthe M erino Cardingsprices sinceJuly 2001. J a nu a ry 2014O FF ER I NGB al es off er ed 45,893 P assed-In ( % ) 17.6 %R e-offer ( % ) 9.7 %AW I COMMEN T ARY Tough selling conditions continued early in this w eek’ s A ustralian w ool m arkets. The three w eek do w ntur n inauction price levels initially m aint ai ned the w eakening trend, and by m id- w eek, a further 25 to 30acents clean/kg had been el i m inated fro m the sellers’ returns for m ost types on offer. A n encouragingsignlateon W ednes day raisedthehopes of aturnaroundin the fortunes of the m arket, w ith the W estern A ustralian m arket sellingat levels above that of both M el bour ne and S ydney , w hichisnotaco mm on outc o m e. This positive signal proved correct as all m arkets recovered onthefinal day. A n average of around 15acents clean/kg w as r egained, but m ore i m portantly the confidence of buyers also appeared to have retur ned to the auction scene. R eversingthetrendof thepast m onth, t he S uperfine M erino types of 18.5 m icronand finer perfor m ed the best out of all w ool types on offer, w i th the br oader M erino and all of the crossbred sector sho w ing the largest of thepricedrops. Types finer than 19.0 m icronfinished the w eek at levels unchanged to 5acents cheaper, w hilst their broader counterparts had shed 15acents clean/kg. The disparity of prices bet w een the best and w orst w ool types of si m ilar m icrons continue, w ith the difference generally a 40 to 80acents clean/kg spread, w ith thelarger gaps appearing at thefinest end of w ool descriptions. Tender w ool sho w ing less than30 N kt (strength test) is beco m ing m ore heavily discounted in the M erino seg m ent, and conversel y, lots exhibiting readings of 40 N kt and higher aregetting very healthy pre m iu m s, although these better strengthlots are beco m ingless available. The latest keytest datareport fro mA ustralian W ool Tes ti ng A uthority Ltd( AW T A ) sho w s that the total w eig ht tes ted for Januar y 2014 co m pared to January 2013 is a significant 8.1 % lo w er. AW T A Ltd has tes ted 216. 6 m illion kilogra m s in the seasontodate(July 2013toJanuary 2014) co m par ed w i th 222.5 m illion kilogra m sinthe sa m eperiod last season; a decrease of 2.7 % by w eight. If the January AW T A tested figures is a gauge of w hatistoco m e, a supply squeeze see m s inevitable at so m e stageandcouldbe anongoing scenariountil further rain events occur toease thecurrent drought and to allo w s heep nu m bers to be bolstered. This m ay take years though, as a lot of w ool sheep have al r eady been sent to s la ughter as feed and w ater availabili ty has been m ini m al. A reasonablevolu m e goes upfor salenext w eek; appr ox i m ately 46,500 bales are currently rosteredfor sale. The final designated S uperfine sale for the season occurs in S ydney, and is expected to feature so m e stylish w ools sourcedfro m the N e wE ngland regionof NSW . W ith the very healthy rally w itnessed at the close of this w eek, so m etalkofne w business enquiries flo w ingintobuyers’ inboxes and arelativelystable A ussie dollar, per haps w ecanafford to beopti m istic and predict a dearer m arket. S ale W eek 34: Fri 21st Feb 2014 CURRENCYMOVEMEN T SAU : USD 0.8954 +0.22 %AU : CYN 5. 4472 +0. 53 %AU : EUR 0.6509 -0 .82 %AWEXEM I AUD 1074 c/kg cln -14c/kg -1.29 %USD 962 c/kg cln -10c/kg -1.07 %CYN 58.50 ¥/kg cln -0.45 ¥/kg -0 .76 %EUR 6.99 €/kg cln -0.15 €/kg -2 .10 %