TOO fast and too soon is the rationale analysts have given the 22 cents a kilogram price check delivered to the Australian wool market last week after it rallied to a three year high in the opening January sales.
The AWEX Eastern Market Indicator retreated 2.3 per cent to close at 920c/kg on Friday, with most fleece types generally shedding 15c/kg to 30c/kg off mid-January rates.
However, the market had recovered slightly to 926c/kg as of yesteday.
Causing the carnage was a drop in demand from China that had risen sharply in the opening sales of January, pushing the market up from 744c/kg 12 months ago to 942c/kg a fortnight ago, as buyers swooped to fulfill orders.
Some analysts have called the retreat a correction rather than a slump, based on a building level of wool demand and a belief in supply shortfalls in the second half of this year.
“It needs to be remembered that this correction in the market followed some very steep rises; and that the closing EMI was still up by 41c/kg (and 39c/kg in US currency) since the closing values prior to Christmas,” Australian Council of Wool Exporters and Processors consultant Peter Morgan reported this week.
The prices in the fine end of the wool market, which Mr Morgan said had up to a 23.4 per cent pass-in rate, was the worst-affected, with 17-micron wool back 3.4pc and 18-micron down 3pc compared with 1.6pc for 22 micron fleece lines.
Techwool trading buyer Brendon Miller said he was confident the wool market would not drop much further.
“It was just a correction we had to have, there was a bit of resistance from China as the market had just got too high,” he said.
“I can’t see the market dropping too much ... after last week when the orders basically stopped they (Chinese buyers) have started to buy again which should minimise any further (price) drops.”
Landmark also believed world demand for wool was only at the beginning of its upward trend.
“Wool exports from the five major exporters were up by 2pc for the season to date in 2009/10,” Landmark sheep and wool analyst Anthony Boatman reported.
“For the month of November 2009 alone, Australian wool exports were up in both volume and value compared with November 2008. This is the first month since mid-2007 that both the value and volume of Australia’s wool exports have lifted in the same month,” he said.
The short-term performance of the wool market largely depended on supply levels, he said.
The Australian Wool Testing Authority January key test data figures identified superfine wool (18.5 micron and finer) production had been substantial, with this category now accounting for 20pc of the Australian clip, up from 4pc in 1991/92.
Total wool lots, bales and weight for January 2010 compared with the same period last season were all down 6.8pc, 5.7pc and 6.1pc respectively.
Progressively AWTA had tested 219.4 million kilograms this season, compared with 232.3 Mkg at the same time last season.
Platinum Agribusiness director Bill Mitchell said producers considering futures in the 19- and 21-micron price guides should be working out what price level they want to target.
“In this environment and at this stage of the cycle minimum price contracts and even collar contracts may be worth considering,” Mr Mitchell said.
This week there is expected to be just over 50,000 bales offered in three centres.
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