Monday , June 14 2021

Wave market crash prompts call from industry leader to halt trading – ABC Rural

The wool market fell by a whopping 163 cents per kilogram, ending this week with 1,513 cents per kilogram, prompting the industry leader to call for a halt to trade.

Key points of the wave drop

Key points:

  • The Eastern Market Indicator (EMI) fell 163c / kg this week
  • This is the largest weekly decline in the price of the wave since 2003
  • EMI is already up 603 cents from the same period last year, prompting industry leaders to call for a halt to trade.

It was the biggest weekly drop in the market in more than a decade.

Australian Wool Innovation chief executive Stuart McCullo said the fall in the Eastern Market indicator this week is shocking, with EMI already 603 cents below the same period last year.

"If the stock market goes down, they will close the market," Mr McCullough said.

"There needs to be some mechanism or some urgent strategy to put in place to sell the wool when there is such a situation. It's probably worth considering."

Slump unprecedented but not market crash

Within the industry, it is rumored that the Australian wool market has collapsed due to the trade war in China and the US, exacerbated by weak demand for Chinese mills.

Australian WSE chief executive Mark Grave acknowledged that these factors were affecting the market but denied the wool market was collapsing.

"The market is volatile at times and is certainly hesitant," Mr Grave said.

"So outside of a catastrophic event, this is the market, and manufacturers exercise their right to either go wave or pull a wave from a sale."

Mr Grave said stopping the wool trade would have to be a solution for the entire industry.

"There will always be someone who wants to sell and someone who doesn't have to sell, so you have to keep that in mind before making any decisions. It would be an important decision to close any market."

Keep a perspective on wave losses

Chris Wilcox, executive director of the National Council of Wool Selling Brokers, agreed and stated that the wool market in Australia is an unrestricted and free market, with manufacturers able to store and sell their wool at their discretion.

He said market losses are significant but should be kept in perspective.

"We are sitting on the $ 15 per kilo mark for the EMI, which is still relatively high but far from the record highs we saw 12 months ago."

The last time the Eastern Market metric was 1500 cents per kilogram was June 2017.

Of the 37,379 bales offered this week, 35% were auctioned, selling for $ 39.6 million at three shopping centers in Melbourne, Sydney and Fremantle.

Mr Grave expected there would be a reduced offer next week.

"I imagine the market will continue and that manufacturers and traders will all make market-based decisions at that time whether to sell," he said.

Some are happy with the price

Despite the huge dive in the market, some manufacturers were pleased to see their wave sold at auction this week.

Tom Mathews of Grenfell in NSW sold 98 bales of 18-micron fine wave at the Yennora wave auction in Sydney on Wednesday for just 1.5 percent below the average price estimate of 1,100 cents per kilogram.

"On the whole, it's a good day to sell everything because of all the volatility in the market, who knows when it can improve," Mr Mathews said.

"It could be next week or 18 months."

His sheep were torn from June and due to the drought, his wool clip returned 30 percent.

Drought has reduced wave volume to historically low levels

The Australian Wool Forecasting Committee has updated its forecast to show that drought will continue to shrink the national flock.

Farmers continue to destroy during drought and, according to ABS, the percentage of slaughter in sheep and lambs has increased 16 percent since that time last year.

Mr Wilcox said the drought remains a parking brake in key wool growing areas.

"The Forecasting Committee expected short wave production to fall by five percent in 2019/20 across Australia," he said.

"Unfortunately, the biggest drop is in the biggest wave production and it's NSW.

"We predict that widespread drought conditions will lead to an 11% decline in NSW, and this follows from a 21 percent drop in 2018/19."

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