After battling an over-supply of grapes recently, Australian wine producers now face a red-wine glut.

This year is shaping up as another tough one for the industry, which also confronts increasingly powerful liquor retailers, a strong Australian dollar and stiff foreign competition.

Market observers say there will probably be too much cool-climate red wine, mostly cabernet sauvignon, around in 2005.

Citigroup estimates that wine producers will have about 190 million litres of excess wine - 80% of it red - by June, equivalent to about 20% of Australia's local and export sales.

The Citigroup report says there is a risk this wine will flood the market for wine retailing below $10, but this depends heavily on the strength of export sales, particularly to the US and Britain.

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