THE relatively benign increase in AWEX’s Eastern Market Indicator of 6c in both Australian dollar and US dollar terms does not really explain the sentiment of the market, or what is going on behind the scenes.
In broad terms the superfine Merino types, which are defying the drought conditions and mostly maintain reasonable quality specifications, are rising quite strongly.
Comparatively the medium Merino segments struggled a bit, with the drought affected wools proving a drag on prices.
Skirting wools received consistent attention from buyers, while crossbreds lifted slightly, and the carding market took a breather after a couple of stellar weeks. The currency markets were relatively benign during the week, but one gets the feeling that volatility is still just around the corner.
AWEX’s northern market indicator closed up 9c on 2162c. The 17 micron indicator closed on 3008, 18 micron 2708c, 19 micron 2439c, 20 micron 2303c, 21 micron 2274c, 28 micron 975c, and 30 micron 738c.
The Merino wool market is developing two distinct channels at present. Obviously, a gross simplification, but nevertheless it does suit the purposes of market evaluation with the traditional suit and sweater market facing clear price resistance at current market levels, but the superfine Merino segment moving forward based on active and casual wear demand.
With the new innovations, a dramatic fall in supply, and rapidly rising prices of cashmere and other noble fibres the regular cycle is being challenged.
- Bruce McLeish, Elders
As has been mentioned in recent weeks the industries’ processors are currently talking to their client base about prices, styles and designs for the new season. In some cases, it is the first price discussion since the same period last year, so the new price levels are based on a raw material increase of 40-50 per cent.
In other cases, price discussions happen more frequently during the year, and so the customers are less surprised. In some cases, these customers are simply refusing to entertain any significant price increase and instead looking to change the blend composition of fabric, adding more polyester or other cheaper woollen alternatives.
Traditionally in times of a price uptrend manufacturers have been able to increase the greasy wool micron to gain some price relief. However, with the current gap between 20 and 22 micron being less than 50c, and supply at the broader end contracting, there is little relief in this usual tactic. Some large wooltop inquiries floating around have been pitched at very cheap levels in order for the manufacturer to try and keep their worsted fabric customers in the frame.
The price level being requested will inevitably result in bastardisation of the quality, with spinning and weaving mill efficiencies plummeting as a result. The purchasing manager and the fabric sales staff may feel vindicated, however, the unfortunate production manager will be tearing his/her hair out trying to produce the correct fabric from such second-grade inputs.
This price resistance is at the most extreme in the worsted suiting market, where the traditional business suit for the office worker is still important, but the salary level of the customer is not increasing enough to justify a 10-20pc increase in the cost of the suit – at least in the minds of the retailer who has a fixed price point in mind.
At the upper end of the men’s and women’s wardrobe there is more price elasticity, but for the junior office worker, or the low paid salary worker, retailers are reluctant to move away from their traditional price point of $399, $499 and so on.
In the Chinese uniform market there does seem to be less of a problem at the moment. For those mills with the connections and manufacturing skills to obtain the orders the Chinese government is not hammering them too much on price. It seems the tide has changed from a Beijing policy point of view, and they are willing to spend funds to keep the economy moving.
The penny pinching, corruption busting mindset of previous years has taken a back seat to splashing enough cash around to offset the effects of Trump’s tariff war.
For most manufacturers of Merino products quality is paramount and they will simply not go down the path of seeking out a lower cost input, preferring instead to concentrate their efforts of manufacturing efficiencies, and having positive conversations with their customer base about how to increase the prices along the chain so that everyone can survive and prosper.
It is not easy where there is an existing overcapacity such as in top making, and worsted spinning, but in sectors such as knitting or those weaving new fabrics for sports/causal shoe uppers life has never been better. Again, and again stories come to the surface about the new innovative uses for merino that defy the traditional boom and bust mentality of the old school.
For many decades the wool price has risen on the back of renewed demand, to a point where demand was choked off, and then prices fell again, usually very swiftly until a point was reached where demand could come back to life.
With the new innovations, a dramatic fall in supply, and rapidly rising prices of cashmere and other noble fibres the regular cycle is being challenged. It is still too early in the season to comfortably tick the box, but those who are lamenting the current high prices are increasingly being drowned out by the chorus of those who are comfortable or moving forward at pace.
So, we may possibly see a further correction – probably in the medium Merino segment where price resistance is most extreme, but then by year’s end we could be looking at a Merino market that is trending up again.
