In a variation on the price compression theme looked at in an article two weeks ago for the 19-micron category, the article this week looks at the difference in price between the average merino carding and combing price since 2000.
The 20 MPG to merino cardings has been a reliable flag of cyclical lows in price for the past four decades. In past articles, Mecardo has looked at the difference in price between the 20 MPG and the AWEX Merino Cardings (MC) indicator as a guide to when the wool market is at a low level. Changes in the Australian merino clip now means these two indicators are a good 1.5 micron broader than the average fibre diameter (combing and carding) so this article substituted a rolling average “indicator” merino fleece series and a locks/crutchings carding series to bring the microns of these two series in line with the current Australian merino clip.
To illustrate the changes in fibre diameter seen in the Australian merino clip, Figure 2 shows the weekly fibre diameter of wool sold at auction for the indicator fleece and cardings series from Figure 1. The micron has dropped for both by 2-2.5 microns which is a big change.
A weekly average “indicator style” fleece price series and weekly average merino locks and crutchings price series are shown in Figure 2, in nominal Australian cents per kg terms from July 2000 to last week. The two series follow common cycles and trends, with the cardings price at a lower level. The gap between the two series does vary, and it is this gap we are interested in.
In Figure 3 the indicator price series from Figure 1 is shown, along with the price difference between the two series shown in Figure 2, which is the amount the combing price sells above the carding price. The price difference or spread has varied from around 300 Australian cents per clean kg up to 1100 cents since 2000. Some astute readers will ask why nominal prices are being used rather than inflation-adjusted (deflated) series. The answer is that the pattern for the combing-carding price spread seems to work better in nominal terms.
Around 400 cents clean in the spread in price between the average merino “indicator” fleece and cardings seems to be the level at which price compressions in the market have reached a level where further falls in the combing fleece price are minimal. The spread has been down to 300 cents, but when below 400 cents the combing price is generally at/near cyclical lows or is starting to rise up out of the low and trend upwards. The spread does not provide any timing information, it can stay low for some time, or only a short time. In terms of price levels, it does not help greatly when the combing price is high, only flagging when the market is at or near cyclical lows.
The current spread in price between the average merino combing and carding price is around 750 cents, which is well above the 400 cents level, implying the market is not yet near a cyclical low.
What does it mean?
The difference in price between the rolling fleece and carding averages provides a good flag for when combing prices are near their cyclical lows. Currently, the message is that the market is not yet at or near its lows for this cycle.
Key Points
- Average merino fleece and carding price series are used as a guide to combing-carding price differences.
- By using the average merino fleece and carding prices, changes in the micron structure of the Australian merino clip (both cyclical and trend) are accounted for.
- The current combing-carding gap is still wide and is not yet indicating prices are near their lows for this cycle.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: AWEX, ICS, Mecardo
