Wool prices expected to remain volatile

Press, 24 February 1986, Page 13

Wool prices expected to remain volatile

PA Wellington Wool auction prices are likely to remain volatile during the next few weeks, says the Council of Wool Exporters in its weekly wool market preview.

The mid-point of the season has been reached, with spring-shorn wool petering out and autumnshorn wool just starting to come forward. Mr Blair Mcßae, of U.E.B. Textiles in Napier, said this was a time when offerings of main types are restricted. In this environment, prices for limited quantities of specific types might be driven up by exporters seeking to cover for an export contract. Also, because of the acute financial pressure faced by exporters who still had big quantities of January-bought wool being scoured or further processed, other normally favoured types might attract little buyer interest. “Adding to these seasonal influences is the effect of the floating dollar and high interest rates on the wool market,” said Mr Mcßae. For many New Zealand wool processors these factors have made this season one they would prefer to forget, says the market preview. ___

While international sales are almost entirely linked to actual or predicted falls in the value of the N.Z. dollar, manufacturers are committed to maintaining a production flow virtually regardless of the interest being paid on work in progress and the final world market price for the processed fibre.

Trade sources say that if interest rates remain high and the exchange rate volatile, there is unlikely to be any significant further investment in wool processing in New Zealand.

Mr Bill Carter, executive manager of the Council of Wool Exporters, said there was conflict between the Government’s desire to restructure the economy and the need for good export marketing.

“The Government’s high interest rate and high exchange rate strategy has its greatest Impact on industries with large workforces and large investments in plant and machinery,” he said.

In the case of wool processing, the longer the wool was in manufacture, the greater the exchange rate risk and the greater the interest bill which had to be paid. “Even for unprocessed and scoured wools there is a need to be able to offer overseas customers stable prices several months ahead if the goal of good marketing is to be achieved. In the present environment this is just not possible. “Two years ago New Zealand wool exporters had a hard-won reputation for their ability to offer overseas customers wool at firm prices several months in advance. In fact, New Zealand wool prices were more stable than synthetics, a

factor in the textile business where every cent counts.” Mr Carter said world demand and prices for New Zealand wool had been steady over recent months. But because of the volatility of the N.Z. dollar, prices at auction had tended to fall, effectively divorcing growers from the marketplace. “For a trading nation with a floating currency, it is absurd to have the value of our dollar influenced more by Government policies and international financiers than by demand for our exports or the strength of the economy." Mr Carter said one of the costs of the float was that wool customers overseas were starting to look elsewhere for supplies. Recent reports, for instance, indicate that China for the first time sees Britain as an alternative source of quality wool for its hand-knitting yarns.

Until now, most of this wool has been sourced directly from New Zealand.

At present wool export activity is quiet, with few new contracts being negotiated. However, some useful sales have been made to Poland and manufacturers are finding that the present exchange rate crossover between New Zealand and Australia is making transTasman sales more profitable than they were when the N.Z. dollar reached AustBoc several months ago.

Although the N.Z. dollar has unexpectedly weakened to about US53c in the last week, sales to Europe have not picked up.

Exporters say European customers generally have good stocks and are holding back on making any purchases in the expectation that the N.Z. dollar will fall further and give them the opportunity to buy New Zealand wool even more cheaply.