In November Mecardo looked at 16 micron prices in relation to cashmere and concluded there was limited upside to the fine wool micron category. 16 micron prices ignored this view and have jumped by three dollars so we go back and have another look at this topic in this article.
The view from last November about their being limited upside for 16 micron prices in 2018 was built upon two assumptions. Firstly an assumption was made that the supply of 16 micron would start to rise in 2018. There is plenty of time for this to occur but in the three months to January the supply of 16 micron wool tested by the AWTA has fallen by 20% compared to year earlier levels. As such supply has been very supportive of price.
Figure 1 shows the 16 micron price series and a cashmere price series in Australian dollar terms from the late 1980s through to last week. The sharp rise in the 16 micron price in recent months stands in contrast to a rather steady performance by cashmere.
The latest note from The Schneider Group about cashmere says the prices have been rising in China during January, so this may work its way through and allow the 16 micron some further rises in the short term. If interested, you can subscribe (freely) to market reports which include cashmere on the G.Schneider website. Past reports on cashmere and silk are available on line.
In November the second assumption used to underpin the projections made was the relatively high price basis of 16 micron to cashmere. In November it was in the 17-18% range (the average sound, combing fleece price for 16 micron wool was trading at 17-18% of a cashmere price series) and the upside to this looked to be limited to around 20%. As of January the basis has returned to 20%. There is no magical nature about the 20% level except that this basis has peaked around this level consistently since the mid-1990s. Figure 3 shows the 16 micron to cashmere price ratio from the late 1980s through to last week.
While Western Australia has been boosting the supply of 17 micron wool (up 18% in the three months to January) it will take an increase in supply in the eastern states to boost volumes. This seems likely as we move into autumn and the delayed effect of less rain in 2017 compared to 2016 starts to show up in the clip. Supply still looks like it will dampen prices for 16 micron in 2018.
What does this mean?
The continued fall in 16 micron volumes has helped boost 16 micron prices by three dollar or so since November. This has lifted the 16 micron price ratio to cashmere to around 0.2 (20%). In the autumn the supply of fine wool should start to increase in the east. If this happens then the 16 micron to cashmere price ratio should come under some downward pressure. The wildcard looks to be cashmere price which is showing some signs of increasing although GScheider says we will have to wait until the new cashmere season in the southern autumn to see what happens.