Wool market nervous over N.Z. dollar

Press, 25 August 1986, Page 14

Wool market nervous over N.Z. dollar

PA Wellington There is tension in the wool market as the New Zealand dollar continues to slump against the main trading currencies, says the Council of Wool Exporters in its niarket review.

With the dollar at a weak level and crossbred wool stocks at an all-time low, there is a strong expectation that wool prices will soon surge up to reflect the apparent supply-demand pattern for the fibre.

However, a continuation of last year’s commodity recession is possible. The council’s executive manager, Mr Bill Carter, said that present prices at auction did not reflect the decline in the New Zealand dollar, because of the northern hemisphere holiday shutdown and reluctance of customers to buy during a period when the currency was unstable.

There was also a worldwide economic nervousness which afflicted all commodity-based industries, textiles included.

“At present there is not enough new business being written to bring auction prices up much further,” said Mr Patrick Desbonnets of Dewavrin Segard, Wellington. “But there is enough current demand, much of it from local scours and spinners, to sustain it at present levels.” At the sale of North Island wools in Wellington today prices may move upward for the second shear wools on offer,

though any movement is likely to reflect the limit offerings of these types at recent sales rather than any changes in world market demand. Mr Desbonnets said it was a good thing that auction offerings will be limited from today until late September, as it will give time for the currency to settle down and for northern hemisphere customers to re-evaluate their positions. Even now, in the wake of the dollar slide, exporters reported increased inquiry from Europe as customers recognise that currency movements make New Zealand crossbred wool up to 12 per cent cheaper than it was in July. Japanese and Chinese buyers looking for fine wools are also showing greater interest as the gap between the Australian and Kiwi dollars continues to grow.

Mr Peter Marshall of John Marshall and Company, Christchurch, picked that the cross rate between the two currencies was likely to remain about 80c in coming months.

This level, he believed, should be sustainable for exporters of semi-pro-cessed wool exporting to Australia so long as the Australian Government reduced its bounty payments as promised in the recent Budget. As an exporter of carded sliver (the processing stage which immediately proceeds the manufacturing of yarn) he said there was a danger for exporters of both

greasy and processed wools of becoming too dependent on individual markets.

In the case of Australia, the biggest problems were heavy competition from fourth generation nylon and the state of the internal economy.

“If customers can’t afford to buy our carpets, it really doesn’t matter what the exchange rate is,” he says. Mr Marshall said that New Zealand now had the capacity to process a quarter of the wool clip. But this capacity is greatly under-used, a reflection of the world commodity recession and the fact that much of it had only recently come on stream.

“In fact, the over-capa-city is not restricted to New Zealand. There are under-utilised. mills throughout the Western world,” he said.

“Further processing gives the exporter the opportunity to add much more value to the wool he handles. But it doesn’t provide protection from the vagaries of the marketplace. “Certainly , you get greater customer continuity when you are providing yarn or sliver to meet a mill’s specifications, but there is no less price volatility, no less uncertainty than there is with greasy wool.” said Mr Marshall.

“The textile industry is extremely susceptible to supply, demand and fashion — from the top to the bottom. And it applies as much to synthetics as it does to natural fibres.

“That is why the people who are producing fourth generation nylon are giving wool such a challenge in Australia.

“They themselves are under siege for their early generation products which have now come off patent and are being manufactured at . rock bottom prices in every second Third World country.”