Global trade uncertainty and higher production of superfine wool will push prices down by 26 per cent this financial year, according to the national commodity forecaster, ABARES.
In its revised forecasts for 2019-20 released this week, ABARES has predicted an average Eastern Market Indicator (EMI) of 1435 cents a kg clean.
ABARES blamed the predicted slide on competition with substitute fibres and high uncertainty in textile demand.
It said China-US trade tensions had negatively impacted the prices of all textile fibres, driven by new tariffs on China's garment and textile exports.
Textiles were primarily traded in US dollars, so devaluation of the Chinese yuan against the US greenback was expected to put downward pressure on prices.
The EMI averaged 1939c in 2018-19 but is now tipped to drop to 1435c in the coming year because of reduced and uncertain demand in world markets, ABARES said.
Micron premiums for superfine wool had dropped since late last year because of a lift in supply following the prolonged drought in the eastern states.
While wool production was down because of lower flock numbers, demand-side factors were driving prices down across the whole micron range.
The China-US trade tensions provided an incentive for Chinese textile manufacturers to delay wool purchases, ABARES said.
And a long run of historically high prices could encourage mills to substitute towards lower-cost fibres.
In real terms, the EMI was still above the long term average. However, ongoing trade wars and competition from other fibres was expected to force wool closer to parity with other fibres in US dollar terms.
Australian shorn wool production was forecast to decline by 5 per cent to 286 million kg greasy in 2019-20.
Of the wool tested in 2018-19, the supply of fine and medium wools (18.6 to 22.5 microns) fell by 24.5pc year-on-year.
Drought has pushed the average micron of the clip lower, resulting in larger supplies of lower-quality superfine wools (18.5 microns or less).
The story Trade tensions and superfine wool glut to push down prices first appeared on Farm Online.