The warning was issued by Taisuke Shimizu, vice president of trading house Kanematsu Corp at the Australia-Japan Business Co-operation Committee conference after this year's major collapse in Australian wool prices.Slumping demand, especially from Asia, had helped trigger a collapse in Australian wool prices from an average of 702 cents per kilogram in the first half of 1997/98 to 470 cents at last count.

The Australian wool industry could sink like the Titanic if Australia and Japan continued to reduce their production and import of wool at the scale which had occurred in the latest year, Shimizu told an annual Australia-Japan business conference.

He called on Australia to rationalise its sale and transport system for wool and continue to develop new wools to meet consumer requirements, but offered no further solution towool's plight.

Japan's purchase of 300,000 bales of Australian wool in the1997/98 season ending June 30 were 35 per cent down on the previous year as a result of "stormy" conditions in the Japanese wool industry, Shimizu said.

Japan's total purchases of wool from all sources in the year, at only 490,000 bales, was at a 50-year low in quantity terms, he said. It compared with the peak of two million bales which Japan purchased from Australia in 1972/73.

The market decline was the result of a depressed consumer market, a shift in purchases by Japan away from raw materials to finished goods, as well as competition from other fibres, Shimizu said.

The strong yen had made it possible for the Japanese consumer to buy Italian and French fashion items at fairly reasonable prices, causing major damage to Japanese domestic manufacturers who had not moved production offshore, he said.

The trading house Chief said that despite a strong decline in prices, at US$3.30-$3.60 a kilogram wool was still six times moreexpensive then polyester fibre and 2.5 times more expensive than cotton.

"Under the recession the consumers pay more attention to price than quality, therefore the sales of wool goods are not as large as other goods of other fibres," he said.

Additionally wool had a chronic over supply problem, he said. A devastating collapse in the Australian wool price because of the Asian economic crisis and a buildup of stocks in Western Europe had produced more competitive price ratios for wool of 2.9 and 2.5 against synthetics and cotton respectively, John Ring, managing director of Australian pastoral house Wesfarmers Dalgety Ltd told the conference.

But Australia's growing "secondary stockpile" of wool held by grower, at 839,225 bales on September 8, was a major factor affecting wool supply, he said.

"The flow of this stored wool onto the market will have a major impact on the market over the next few years and a rapid sell-off by growers would have a dampening effect on prices," he said.

Ring said thecombined impact of a weakening wool market and a lower Australian dollar against the US.

And Western European countries meant wool prices were 30 percent lower in user currency terms at the end of 1997/98 than a year earlier.Despite this, demand for Australian wool from Asia had dropped by up to 52 percent in some countries in the second half of 1997/98.

Australia's overall exports of wool in 1997/98 at 711million kilograms greasy equivalent was just under 10 percent lower than the previous year, he said.

Ring was pessimistic about a recovery in wool demand before the first half of 1999.

"With little hope of an economic upturn in 1998 and unemployment continuing to rise, wool apparel purchases are unlikely to improve," he said.An increase in wool sales from the grower secondary stockpile could wipe out any reduction in supply through a freeze on sales from Australia's official wool stockpile, he said.