National wool sales closed slightly cheaper this week with most categories finishing 5/15 cents cheaper. This can be attributed to a small increase in exchange rates but also reduced demand from China/India and bidding prices below current market levels. On the positive side Europe has shown more signs of entering the market with increased levels of inquiry. Expect sideways movement to continue in coming weeks as supply starts to slowly increase particularly on the finewool types, although sale quantities are approx 10/20% down on this time last year.
Most States received reasonable rain in June/July but are still awaiting early spring rain to stimulate pasture growth and most importantly save farmers from another failed crop. A further sell off of breeding stock will occur if rain doesn't arrive soon as hand feeding costs continue to soar. Exporters are already nervous on where the wool will come from in the first six months of 2008 and if supply continues to fall then we could expect a large rally be it volatile to follow.
The following article is the latest update on quota issues in China from the Australian Council of Wool Exporters and Processors this week.
Update re China Quota Issues 4 September 2007
Progress continues to be slow.
International Activity
The Argentinean industry advises that their Government has also contacted the Chinese Government on this matter.
Meeting Between Australian Trade Minister, Warren Truss, and Chinese Commerce Minister, Bo Xilai, 26 August
As previously advised, the two Ministers met in Manila during the 12th annual ASEAN Economic Ministers - Closer Economic Relations Consultations and the East Asia Summit.
The Department of Foreign Affairs & Trade (DFAT) advises that Mr Bo initiated discussion on the quota issue. He indicated that he had a full understanding of the problems created internationally and in China by the suspension of the processing of new applications for quota and that work was in place to resolve the matter. However, he also implied that:
* Adding the Raw Wool (287 mkg) and Tops (80 mkg) quotas to increase the Raw Wool quota for 2007 is unlikely to occur. This confirms previous advice and may be due to the different classifications of Raw Wool (agricultural) and Tops (industrial). There are different tariff and VAT regimes and probably other regulatory difference also.
* The 287 mkg limit for Raw Wool is unlikely to be lifted this year, again confirming previous advice.
* There is strong wish not to reach the situation of exceeding the 287 mkg limit and incurring the 38% out-of-quota tariff rate. (Note, this appears achievable only by reducing the current volume of imports [as is happening], increasing the 2007 quota or suspending the out-of-quota tariff rate of 38%)
The possibility exists for further discussions during the trade talks which are being held as part of the Asia Pacific Economic Conference (APEC) in Sydney this week