China business hampered by cashflow and shipping squeeze

Fox & Lillie Rural Stock & Land Contribution.

The same theme in the wool market has continued during the past few weeks.

There has been good trading activity in the 19-micron and broader Merino categories, and the finer micron types just do not have the same push that they had a month ago.

And it is a theme that looks set to continue.

Another continuing trend is an increase in vegetable matter (VM) in the selections on offer, and the widening of price gaps between lots that have less than 1 per cent VM and those with more than 1 per cent VM.

The main fleece types that are sought by China are based on an average VM of 1 per cent, and it has been getting increasingly hard for buyers to achieve this figure.

The Melbourne auction centre has historically had wools coming through with less VM than the Sydney centre.

But VM levels in wool being offered at both centres have jumped by about 0.4 per cent in a matter of weeks – and many have been well over 1 per cent.

What is interesting to note is that both centres have wools going under the hammer with similar staple length and strength data, compared to a month earlier.

The dust factor has pushed yields down to a noticeable degree – but not enough to trouble the market, as it is still easy enough to meet the average yield for China fleece orders above the minimum.

Wools being offered through both the Melbourne and Sydney centres have pushed out significantly in fibre diameter.

Some various pieces of information coming back through Fox Lillie export is that woollen mills are busy and under a bit of pressure because not all their staff have returned after the Chinese Lunar New Year break.

But their production levels continue to be very solid.

There is enough interest to keep inquiries and supply relatively constant to China, which is receiving more interest from brands in the US than in Europe at present.

Some extra competition has become more obvious in recent weeks and inquiries and orders from some of the weaving companies in China are returning.

This suggests that demand for woven suiting cloth is slowly improving, which is quite a contrast to the situation in Europe – where the weaving sector is still very challenged.

Cashflow for many in the industry in Australia is getting tighter every week, as bigger sales absorb a substantial amount of exporter funds.

Adding to the squeeze is a shipping slowdown due to restricted vessel sailings.

This slowdown can add up to an extra two weeks in deliveries.

It also means exporters are having to amend the Chinese Letter of Credit (LC) documentation to reflect later shipping times, giving mills extra time before they need to instruct their banks to pay the exporters.

This whole scenario is restricting exporters from taking up as much business as the Chinese are offering, due to the tight credit situation.

With fewer exporters able to service all the inquiry, those that are selling are in a better position to negotiate on price.

This probably helps because – as we are seeing – there is no lack of wool supply streaming into auctions at the moment.

On top of this, the drop in the Australian currency last week did help to get more action from China against the backdrop of the bigger auction volumes.

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