NZ wool market starts new season on 'weak note' due to US/China trade war

Friday 17th August 2018

The New Zealand wool market started the new season on "a very weak note" due to concerns about US tariffs on Chinese products, according to AgriHQ's latest monthly report on the sheep & beef sector.

The 2017/18 wool auction season, which ended June 30, had shown some improvement on the prior year. That helped clear stockpiles built up after demand from China, the biggest market for New Zealand's largely strong crossbred wool clip, dried up as fashion favoured finer wools such as Merino.

However, that improvement doesn't appear to have continued into the new 2018/19 season, AgriHQ said.

"The beginning of the 2018/19 wool season has started on a very weak note in comparison to where the last season closed," AgriHQ analyst Reece Brick said in his report. "Demand for strong crossbred wool has plummeted for the first four sales of the season and indicator prices have dropped over 8 percent from the end of June."

Brick noted that China drove the market lift last season and there was never any guarantee demand would be sustainable.

"Unfortunately for the wool industry, the trade war between China and the US has completely dampened any spark of demand that was igniting, and can foot the blame for the drop in prices so far this season," he said. "Chinese buying activity has been very quiet, and until we see this situation reversed, the strong wool market will struggle."

Brick said Chinese importers were dealing with a sharp devaluation of their currency against the US dollar and were looking to compensate for that when they bought their wool. While the lower New Zealand dollar was positive for the wool export market, it wasn't enough to counteract the lack of Chinese demand, he said.

Some 46 percent of New Zealand's wool exports went to China last season, up from 40 percent in the year-earlier period, according to the report.

"The outlook is riddled with uncertainty for China, lowering the willingness of importers to make decisions too far out," he said. "There will still be some buying activity when it becomes essential to meet orders, but this is likely to be sporadic at the best."

Alternative markets weren't able to take the volumes China could and had little impact on prices, Brick said, adding that the market is expected to continue along a similar path to that seen so far this season.

In contrast, fine wools were "hot commodities", he said. Eighteen-micron Merino wool is having a "very solid beginning" to the season, changing hands at $26.10/kg. That's ahead of the average auction price for the fibre of $23.81/kg last season and up from $17.10/kg in the previous 2016/17 season, according to AgriHQ data.

(BusinessDesk)

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