A wool market economist has forecast that while wool supply will be low during the coming year, demand has lifted and prices should stay buoyant for some time to come.

In a presentation at the 2007 ABARE commodity forecasting conference in Canberra today (6 March), Chris Wilcox, chief economist, Woolmark Market Intelligence, explained that he is "cautiously optimistic" about the remainder of the 2006/07 selling season.

Speaking about "Australian Merino Wool: Playing to Our Strengths," Mr Wilcox said that while wool production will be the lowest this season since World War II due to effects of the drought, the industry still has many factors in is favour.

"Things aren't as bad as the doomsayers might tell us," he said. "The positives include continued strong global economic growth, fashion trends which support natural fibres, the best orders and business conditions in the global wool textile industry in five years and high oil prices which translate to high synthetic fibre prices."

Mr Wilcox believes that these current conditions should generally prevail and that, as a result, the current raw wool prices should be sustainable for the rest of the season.

"Savvy businesses in our industry are playing to the strengths of Australian merino wool - for example, since the turn of the millennium, many wool producers have changed the type of wool they produce, producing more fine merino wool in response to consumer demands for comfortable, lightweight, quality apparel.

"They are taking best advantage of consumer-led requirements. Other Australian wool businesses are also responding to consumer demands for quality, value and, very recently, the strong growth in interest for 'ethical' products."

Mr Wilcox added that while the Australian Wool Innovation Production Forecasting Committee predicts that wool production in Australia will drop by 9% this season, he expects that Australia's wool supply (that is, production plus stock sales) will fall by 3%.

"Australian growers are naturally running down any stocks they have because of better prices, so there won't be much spare wool to auction later in the season," he says.

Mr Wilcox believes that the low supply has been a trigger to the price rise, rather than the driver of the price rise.