By Andrew Woods, ICS | Source: AWEX, RBA, ICS
The rise in wool prices since late March has seen prices lift by 14% for the 21 MPG in Australian dollar terms, and by 19% in US dollar terms. The last time the market lifted by such proportions was in late 2012 and in late 2013. This article looks at these previous price rises as a possible guide to the pattern we can expect in coming months.
Figure 1 compares the price rises, for the 21 MPG in US dollar terms, of late 2012, late 2013 and this autumn using their respective starting points as the base set to zero. Both recent rises lifted by around 20%, as the current rally has. The previous rallies took around three months to complete their rises, before spending the following 3-4 months gently easing in price. Some five months after the start of these rallies, the market managed to retain 50% to 60% of the rise in price.
If the current market follows these past patterns then we should see the market reach the upper end of the rally in the coming month, followed by lower prices.
Discussing things in US dollar terms is all very well. However, what do the rallies look like in Australian dollar terms? Figure 2 shows the same analysis in A$ terms. The previous rallies both took longer to peak. They also took longer to fall. This was a result of the exchange rate falling away after the rally peaked in US dollar terms, which helped to hold up the value of the 21MPG in A$ terms.
In late 2013, the combing carding basis was at low levels (read our April article What can the high cardings price tell us?), and the rally in combing wool prices widened this basis. However, in 2015, the demand for carding wool has stayed strong. This is causing carding prices to keep pushing up underneath combing wool prices, narrowing the basis and limiting the downside risk in the latter. This rules out a big retracement in combing wool prices, and could be consistent with the combing wool prices holding most of their gains in the next 3-4 months.
Looking forward in markets is always a fraught activity. However, we have a few indicators in the current market that help point to what is likely to occur. Continued strong cardings prices suggest that the combing market will hold most of their recent rises. The sobering apparel fibre backdrop to the market suggest we are not going to see a re-run of 2011. The rise of around 20% in 2012 and 2013 suggests that, after finding the peak of this rally, the market will spend 3-4 months gently easing into the spring.
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