This article was originally published by Mecardo on Click here to read the original article.

International commodity prices tend to follow similar cycles and trends in different currencies. Exchange rates that are important to the price of a commodity also depends on where it is consumed. For example, wool may be processed in China but then exported for further processing or for sale as apparel. In this case, the Chinese RMB exchange rate is less important.

For wool consumed within China (reported to be in the order of half of the Australian clip) the Chinese RMB exchange rate is more important. This article takes a quick look at some key wool indicators in Chinese RMB terms.

Indicators used by Chinese traders

Chinese traders and early stage processors tend to use the 21 MPG as their bellwhether greasy wool price indicator (the base of the old China Type 55). Figure 1 shows the eastern Australian 21 MPG in Chinese RMB terms from early 2010 to last week. In February, the price nearly reached the peak levels of mid-2018 (where prices were up 100% on the low levels of 2015) but has since then retreated, a process which has accelerated this week especially for poor style, low yielding droughty type wool.

Figure 2 repeats the exercise for the eastern Australian 18 MPG and reveals a different picture to Figure 1. The 18 MPG market in 2018 was not as strong as the 21 MPG, with 2018 prices lower than the 2011 cyclical peak levels. The 18 MPG has not risen a lot since early 2017, spending the past two years trading within a fairly narrow price band.

Star micron categories

The star micron categories of the past six months have been the Australian crossbreds. Figure 3 shows the 28 MPG in Chinese RMB terms from 2010 to last week. From 2011 to 2018 the 28 MPG roughly traded between 35 and 50 RMB. It peaked in April at around 60 RMB and is now retreating from this peak level. Unlike the combing Merino prices, which trended higher from 2015, the 28 MPG has only burst to fresh highs this season.

Finally, in Figure 4 the Merino Cardings indicator (MC) is shown in Chinese RMB terms from 2010. Like the Merino combing prices, it trended higher from 2015 onwards. However, it has not maintained its value after the mid-2018 peak price level. The MC is down 37% since mid-June, a fairly standard cyclical downturn in magnitude. Clearly, the MC is in the grips of a solid cyclical downturn, which given the uncertainties created by the tariff issues between the USA and China, is not likely to turn around in the short to medium term. – Andrew Woods, Mecardo