China still top source of concern

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The Australian wool market finished 0.7 per cent lower with the closing Eastern Market Indicator falling to 927 cents/kg clean at last week's sales.

AWEX said auction volumes remained low, particularly in Fremantle where first-hand offerings (excluding re-offers) were tracking at almost 20 per cent lower than the same time last year.

"Fremantle had a one-day sale comprising 4300 bales, the smallest in two years," AWEX said.

"The Western Market Indicator finished at 924c/kg.

"The market continued to move lower across most types.

"The fall in prices was in spite of a weakening Australian dollar which traded below US102c late in the week, a six-week low."

Elders national wool manager Andrew Dennis said the economic picture around the world continued to dominate the thought process of most people in the trade.

He said that while the European Central Bank confirmed to proceed on its bond buying program and the data in the US market had been positive, China remained the real issue for the wool industry.

"From an early stage processing point of view, structural reform in China is overdue," Mr Dennis said.

"Many topmakers in China are facing difficulty which they have not had to deal with before.

"In previous downturns the Chinese industry has been able to leverage the cost advantage they held over the Western world topmakers - lower labour costs, government support.

"However, now that nearly all of the world's topmaking occurs in China or India, the playing field is much more level and many mills are struggling with this situation.

"Finance is comparatively tight in China with banks being reluctant to advance more cash to textile operations with a less than favourable business case.

"An over-capacity has also developed in this sector, in particular to machinery.

"The volume of wool has contracted but the amount of machinery has not."

Mr Dennis said there seemed to be a slight recovery in the amount of inquiry lately.

"Markets like Korea, Japan and Western Europe have all been more active with requests for updated wooltop prices in the past few days," he said.

National wool sales this week are rostered at 36,788 bales with present estimates for the following two sales at 45,230 and 39,900 bales, respectively.

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