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Thursday, May 28, 2015

Cardings prices support faulty combing wool prices

By Andrew Woods, ICS  |  Source: AWEX

Key points

  • High carding prices in relation to combing wool prices is helping to compress discounts for high vegetable fault.
  • High cardings prices also help to compress discounts for low staple strength.


2015-05-26 Cardings And High VM Pieces FIG 1

2015-05-26 Cardings And High VM Pieces FIG 2

The wool market is actually a group of associated markets. These different markets (think carding and combing wool or merino, crossbred and carpet wool) overlap and interact. Pressure on one particular market, therefore, spreads into other markets. This article takes a brief look at the relationship of cardings prices to high vegetable fault pieces and low strength combing fleece wool.

Figure 1 shows price series for the past decade for 19.5 micron 50 mm long fleece and for slightly finer (19 micron) merino pieces with a vegetable fault (VM) between 5% and 11%. The two series follow each other closely, occasionally getting out of line for short periods.

High VM pieces (16.5 micron and broader) prices are trading around their 90th percentile for the past decade or higher, better than comparable fleece prices. Figure 1 helps to explain why. The rampant cardings market is pushing prices for these traditionally faulty types up in relation to the combing fleece market.

Figure 2 looks at carding and low staple strength fleece prices. It shows a series for 19 micron 50 mm long fleece and a 20 micron (a micron broader) fleece series with low staple strength (below 20 N/ktx), for the past decade.

The relationship between the two series is not as tight as shown in figure 1, but average and median prices for the two series are the same. Limited discounts for short staple strength feed into limited discounts for low staple strength (read Cheap staple strength follows cheap staple length). Figure 2 illustrates this.

The importance of carding prices to the level of wool prices generally points to the need for some good market analysis, beyond a monthly note here or there,  to help understand the cyclical (which will change) and structural (more permanent) drivers of this market.

What does this mean?

The continued strength of the cardings market means that discounts for vegetable fault and for low staple strength will continue at minimal levels. Apart from supporting combing wool prices at historically high levels, the cardings market is also compressing premiums and discounts operating in the market. Most forward contracts have floating premiums and discounts. The narrow discounts for low staple strength and high vegetable fault are at levels suitable for locking in, from a sellers’ perspective.

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