Textiles facing a stitch-up

Dedicated followers of fashion come unstitched as clothes firms face huge hike in wool price

The global textile industry is set for a big shock as wool prices are poised to climb to record highs. The projections come from commodity analysts who have assessed the new year's international production levels of wool, and found them touching 30-year lows. For a range of domestic reasons, the world's biggest producers of wool – Australia, New Zealand and the UK – have all scaled back output and are expected to continue the pattern throughout 2002.

But wool demand from its principal users – China, Japan, India and Italy – is forecast to remain steadily positive, creating a dramatic price hike. In trading on the Sydney Futures Exchange so far this year, certain grades of wool have soared by double-digit percentages. The finest grade, 19 microns (0.0019mm) thick, surged by nearly 13 per cent. In its latest monthly report, the Melbourne-based research house, Woolmark Business Intelligence, warned of further rises to come: "The decline in production is likely to result in a supply squeeze over the next 18 months as demand lifts, resulting in market uncertainty over future availability."

The price rises deal a significant blow to textile makers, which are already struggling in hotly competitive markets. "Their only option", explained Hugh Riddell, a Sydney-based analyst, "will be to pass the costs directly on to the consumer, and I have no doubt that clothing prices for wool products around the world will start to creep upwards."

Several City analysts which cover UK retailers including Marks & Spencer, Next and Arcadia said that the trend could soon hamper such companies' prospects. "They are going to have a job persuading customers in a downturn to pay more for clothes. They don't really have the option of taking the hit themselves," said one.

The plunge in global wool production arises from a number of problems all reaching the market at the same time. In Australia, which generates one third of the world's wool, farmers have realised that there is more money to be made from rearing cattle. The country has remained unscathed by BSE worries, and Aussie Beef now commands a considerable premium. The trend went largely unnoticed by the market as long as buyers were able to draw on Australia's vast stock pile. That is now running very low.

China and New Zealand have both had their flocks badly affected by drought, and UK production sank to record lows last year following the enforced cull of sheep during the foot and mouth outbreak.