25 April 2014

Queensland Cotton have ceased trading of their wool export division due to low margins

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By Nicola Bell - The Weekly Times

UPDATE: WOOL exporter Queensland Cotton will cease trading, but continue to operate its broking arm.

Queensland Cotton’s parent company, Olam International, announced last week low margins and falling demand from China were behind its decision.

But it said its broking division, Western Wool Marketing was still profitable and would continue to “build and expand”.

This follows Landmark’s decision to close its Viterra and Dalgety wool exporting division in May last year due to costly capital investment.

Queensland Cotton’s general manager of wool Michael Avery said wool exporting was a high-capital business and being able to achieve the “benchmark return on capital” was difficult.

Mr Avery said the company would direct some of its assets into the broking division.

“Broking is more profitable and it doesn’t have the same degree of risk,” he said.

“By nature it is a fee for service business.”

With Queensland Cotton exporting about 150,000 tonnes of wool a year, Mr Avery said he expected the volume to be picked up by other buyers.

Australian Wool Network state manager Mark Quartermain said it was disappointing another exporter had quit.

“I don’t think it will have too much impact on the price of wool, as the orders will be picked up by other exporters,” Mr Quartermain said.

Managing director of wool export company Australian Merino Exports, James Thomson said he could understand the returns on an exporting business “just didn’t stack up” to the capital outlay.

But he said costs associated with selling wool needed to be looked at because the broking division was the only part that was profitable and viable.

The Weekly Times revealed earlier this year post-sale wool charges, which growers are mostly unaware of, had risen up to 290 per cent in 15 years.

The post-sale charges to sell wool — levied by wool brokers and paid by the exporter, who passes it to the grower — vary from the cheapest at $22 a bale to a maximum of $39 this year.

Mr Thomson said the costs inhibiting exporters and growers needed to be reviewed.

Queensland Cotton will close its export business in an “orderly wind-down” in the next few months.

Queensland Cotton have ceased trading of their wool export division due to low margins
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