THE Australian wool market has its challenges, but it also has opportunities.
This was the message from International Wool Textiles Organisation market intelligence committee chairman Chris Wilcox, the keynote speaker at the Sheep Industry Leaders forum.
Mr Wilcox said production levels, here in Australia and on an international scale, were a major constraint for the industry with global production at 70-year lows.
Although levels were set to increase over the next 13 years, any improvements wouldn't be substantial.
He said production may move back to the level experienced in the early 2000s, but not to the heights of the 1990s due to the shift in focus to dual purpose and meat sheep throughout the world.
However Mr Wilcox also outlined potential opportunities in both the processing and retail sectors.
Processing would be very much about the trends in terms of labour and electricity costs and according to Mr Wilcox, mills in China were looking to outsource garment making to Vietnam.
"But I see India as a big opportunity, more so than Vietnam," he said.
"India is a country that is expected to see growth in income and growth in population.
"Turkey, North Africa, and Central European countries such as Czech Republic, Romania, Bulgaria and Poland will also present opportunities in the processing sector."
As 70 per cent of Australian wool currently goes to China, Mr Wilcox was optimistic about the diversity these new markets would offer.
In the retail division, the advanced economy markets of Japan and Europe were already saturated in terms of wool consumption.
He said the opportunity for the sector lay in the countries with increasing income and increasing population.
"There is potential in the US on a per capita basis but the big opportunities are in China, Turkey, and the Central European countries I mentioned before," Mr Wilcox said.
He said Russia was also an opportunity for retail demand but said there were mixed signals coming from the region.
"Russia is expected to fall in population over the next five years, but it also expected to grow four to five per cent in income," Mr Wilcox said.
Although there had been a lot of talk of peak oil offering benefits in terms of synthetic fibre competition, Mr Wilcox was not willing to depend on it.
"People say if we reach peak oil prices of synthetics will go through the roof but I don't think we can hang our hat on that," he said.
"We have seen over the last two or three years the development of fracking which means we are becoming less reliant on oil and I don't think we can hope for that kind of recovery.
"We need to instead focus on what we can do to build demand."
In the short term Mr Wilcox said there were some positives to look forward to.
He said while it was a still tough economic picture globally the US economy was showing signs of recovery.
Retail sales figured released last week were better than anyone expected and were the best they had been since 2010 and unemployment figures were also much lower than expected.
"China's inflation rate was lower than anticipated giving more scope for the government to loosen credit," Mr Wilcox said.
In terms of the market he was expecting a patchy price until the end of the year.
"Europe is still in a difficult situation but I think in 2013 we will start to see some more sustained sunny patches," he said.
Mr Wilcox said the recent trade fairs held in Milan and Paris showed good gains for wool.
"The trade fairs were for the autumn and winter season fabric and showed a lot of positive signs for wool," he said.
"And at the garment trade shows in January we will start to see those orders coming through."
Mr Wilcox also commended the Australian Wool Innovation (AWI) for its involvement in marketing.
"The AWI have been shoring-up the markets that are already established and doing a lot of work in China," he said.
"They have also recently been on a trade group tour in Russia and are identifying and pinpointing exactly those markets I have mentioned."