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Insights May 2022

9 May 2022 |Wool
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Insights May 2022

9 May 2022 |Wool
The May update provides an analysis of production and pricing trends for Australian wool producers.

Commodity Overview

  • The Eastern Market Indicator has risen in recent weeks after five consecutive weeks of declines.
  • Demand for high quality wool has supported prices across the Micron Price Guides.
  • Supply chain complications in China continue to weaken demand.

The Australian wool market continued to record a fall in prices throughout early April bringing on five consecutive weeks of losses resulting in the lowest Eastern Market Indicator (EMI) since December last year. However, after a break in auctions over the Easter period the EMI rebounded from 1,367 cents to 1,377 cents. This welcome rally was led by increases between 1-30 cents in nearly all Micron Price Guides (MPG) across all three centres. In Australian dollar terms, the EMI is 35 cents higher than this time last year, but 65 cents lower in US dollars having fallen 39 cents in the last week. This is due to a significant weakening of the AUD which well to 71.2 USc by the end of the week 43 auction.

Bale offerings throughout early April averaged 43,000 bales a week. These were lower than volumes of the same period last year. The week after the Easter sale hiatus saw a rebound in offering as expected. There was a noticeable two per cent decrease in the pass-in rate and an offering of 48,752 bales. Year-to-date offering remains 11.7 per cent higher than 2020/21 due to the strong turnout in the spring of 2021.

Wool quality has continued to be a strong feature of the Australian wool market. Vegetable matter rose by only 0.1 per cent and wool strength has risen 1.4N/ktex since March. Buyers respond keenly to improvements in wool quality metrics leading to increases in demand and price for wool. Wool testing yields have continued to fall to 63.1 per cent since the summer peak of 67.4 per cent. April is generally the month when testing yields begin to rebound. Despite this, it appears to be off to a slow start with yields falling by 0.2 per cent throughout the first week of May. It must be noted that testing yields are at an historic high.

China’s zero COVID policy continues to be cause of concern for wool exporters as Zhangjiagang is now in lockdown. Zhangjiagang is only two hours from world’s busiest container port and home to the major early-stage processing for wool. Stay-at-home orders have led some industrial facilities to force employees to sleep on site, according to some reports. Despite this, delays at wool mills and in-freight are continuing to cause havoc in the industry. There are an estimated 1,000 ships waiting in line at the port of Shanghai. Even if the COVID crisis wanes and China’s lockdown ends, the shipping backlog could take until the end of the year to resolve. There is little doubt that demand in the week following the Easter break could have been much stronger were it not for these issues.

   

Sources: Australian Wool Exchange, Australian Wool Testing Authority

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