After a challenging few weeks, the Australian wool market is finally seeing light at the end of the tunnel.
The AWEX eastern market indicator fell a further eight cents a kilogram last week to 941c/kg but there was a 5c/kg improvement in the broader Merino wool, cardings and crossbred types during Thursday's auction compared to the previous day.
Fox & Lillie Rural's technical and marketing manager Eamon Timms said the minor improvements may indicate the market had finally "turned the corner".
"It does look positive," he said.
"At the moment, the Chinese domestic market can't absorb all of Australia's wool; for the long term we really need to see the European and US markets pick up again."
He said competition increased mainly on the 19 to 21.5 micron wools.
"We saw more orders from Chinese mills, and a bit more enquiry from India," he said.
It is good news for Australian wool growers, some of whom are seeing their wool cheques slashed by a third compared to the high prices of 2011.
Mr Timms said there had been severe falls in the market since the three-week recess and last week's result could point to a levelling out of prices.
"A lack of buying over the past few months led to a very tight supply situation and for many mills the time has come to replenish," he said.
"Exporters had been finding it so hard to get new orders.
"Demand has been lacklustre, but confidence levels have improved with greater levels of enquiry and we've noticed that exporters operated more freely in our catalogue last week."
He expects to see the market consolidate in the next couple of weeks.
National volumes have also been reduced to 40,000 bales but Mr Timms said he would be watching prices carefully when the shearing season kicked off in a couple of weeks.
"The real test of this change in momentum will be if prices can be maintained at these levels when the inevitable spring flush of wool hits the market."
He said another test of the market would be when the special superfine sale at Newcastle finished this week, which would provide an indication of how superfine wools were travelling.
"The Italian mills are coming back from their summer holidays now and this should help the better superfine types which unfortunately have been neglected recently," he said.
Elders' national technical wool manager Simon Hogan agreed, saying last week's small improvements could point to a stabilisation.
"Those coarser wools did finish strongly and competition was more widespread," he said.
He was also crossing his fingers that fine wool found some much-needed support at the Newcastle sale this week.
"We are finally seeing stability in the wool market and I'm just hoping that trend continues," he said.
Wool buyer Chris Kelly, from Australian Merino Exports, described last week's finish as "heartening".
"We did see those coarser wools pick up but fine wools are still homeless," he said.
About 55-60 per cent of his company's wool orders come from China, the balance from India, Taiwan, Japan and Europe.
"Europe and China are still quiet," he said.
"And the Chinese have a dumping mentality, which means if they've got an over-supply of wool they will undersell to get rid of it. That's what had caused some of the drastic falls we've seen recently."
Mr Kelly said forward orders had stalled.
"It has been a more positive week but those finer wools are not out of the woods yet," he said.
He expects a similar trend to unfold this week.
"I don't think we are going to keep seeing prices fall," he said.
Meanwhile, the Australian Wool Production Forecasting Committee has slightly revised down its final 2011-12 production estimate from 345 million kilograms to 342m kg and its 2012-13 forecast from 350m kg to 345m kg.
The revision was largely based on lower final sheep numbers reported by the Australian Bureau of Statistics (ABS).
* More on markets for wool in our 24-page Spring Merino liftout this week.