Returns have improved this week for wool, carrying industry sentiment with them

Merino fleece and carding prices have gained ground after an extended period of low returns, providing a much needed boost for the sector.

Wool growers have witnessed some positive moves in the wool market in recent weeks, as the trade responds favourably to an economic stimulus package from the Chinese government.

The Eastern Market Indicator lifted 17c/kg in a week to finish last week at 1104c/kg. This was mostly thanks to strong competition on Merino fleece and cardings, which were up by 2-3 per cent, and to a lesser extent, broader microns, which also rose but by a more modest 1-2 per cent.

Elders Wool state manager Lachie Brown said it was “pleasing to see a bit of a push on from exporters and processors”.

“The feedback we had it was from the Chinese stimulus... it produced a boost in confidence,” Mr Brown said.

While the stimulus was not directly impacting the textiles industry, it had signalled an uplift in the economic conditions in China.

He said the expectation was that the improved, or at least solid auction results, would continue into this selling week, particularly on the back of smaller offerings.

“It is good to see, it has been months coming, it is a much needed sentiment lift,” he said.

But beyond that, the fundamental drivers of the wool market were still lacking real drive in the short-term, he said. And it remained to be seen how much volume of wool the higher prices would flush out onto the market.

On the broad wool categories, Mr Brown said prices were “just holding” in the Australian currency, but in US dollar terms, they had risen “considerably”, which was a positive signal for underlying demand.

But for a sustained rise in crossbred wool prices, an innovation in apparel wear was needed.

Looking further out, one analyst, Andrew Woods from Mecardo has also flagged the potential for a future “supply shock” due to reducing global supplies.

In a recent analysis Mr Woods pointed out that “conditions are building for a supply shock if Argentine production does fall as projected and Western Australian production falls as feared”.

However, he said the fall would be masked by existing stocks, until they were sold down. He drew a comparison to the state of Merino fleece market in 2001; which was followed by a rising market in 2002.

Merino rams. Picture: Zoe Phillips

Meanwhile, Episode3 market commentator Mike Avery said last week the recent bullish triggers coming from China were being balanced by continued “listless conditions in Europe”.

Mr Avery said fickle consumer confidence, an erratic US currency rate, global tensions, and tight wool supply all made forecasting difficult for the often volatile international wool trade.