Increase domestic consumption of luxury woollen textiles is one of the factor to push growth in wool demand in major international markets and China, the world's largest producer and exporter of woollen clothing and textiles. In China, the growth in wool demand is predicted to be more strongly.

Senior ABARES economist Dr Caroline Gunning-Trant in her analysis presented at ABARES Outlook 2017 said that the continuing growth in wool demand has led to increase in price of wool in Australian dollars since 2014.

The Australian Eastern Market Indicator (EMI) wool price is forecast to rise by 8 percent in 2016–17 to around 1,360 c/kg.

The prices are expected to peak next year before easing in real terms as wool production increases. And by the end of 2021–22, prices are expected to still be relatively high at around 10 percent above the 10 year average in real terms.

The upward trend in prices reflects the constrained supply of apparel wool—given lower flock numbers—and firm demand, particularly for fine wool.

By the end of 2016–17, shorn wool production is forecast to be 5 percent higher than last year, reflecting flock rebuilding across the sector supported by good pasture growth on the back of 2016 rainfall. And the national sheep flock is forecast to increase to 73.6 million head in 2016–17 and to continue increasing to around 83 million head by 2021–22, she added.

According to Gunning-Trant, wool exports are forecast to rise by 4 percent and reach 442,000 tonnes in 2017–18, as the expanding national flock results in further increases to the number of sheep shorn. This trend is expected to continue over the medium term and exports in 2021–22 are projected to grow to around 492,000 tonnes, valued at $3.9 billion, in real terms.

The export growth is supported by a slow but steady increase in international demand. Wool demand will continue to grow in the European Union and the USA, the major international markets for imported woollen clothing.

The expectation for sustained, strong retail sales growth will support continued demand for Australian wool exports and strengthening prices for producers.