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Wool exporters lose millions in Indian and Chinese defaults

Terry Sim, October 28, 2020

ACWEP president Josh Lamb at a wool conference in China.

AUSTRALIAN wool exporters have lost millions of dollars in cancelled and renegotiated contracts with Indian and Chinese customers this year after the dramatic drop in wool prices due to global COVID-19 impacts.

Australian Council of Wool Exporters and Processors president Josh Lamb said the body is aware of cumulative losses with Indian clients totalling about $4.8 million on more than 800 tonnes, or about 5000 bales of wool.

“Others have advised where losses have been incurred on contracts that add to multiple hundreds of tonnes.

“They arise from a combination of cancelled contracts, renegotiated prices and contracts that are in suspension (not yet cancelled or renegotiated),” he said in an ACWEP letter to the International Wool Textile Organisation this week.

Mr Lamb about nine Australian exporters were affected by the stance of about 70 percent of Indian mills that Australia deals with.

He said issues with contracts with Chinese companies would add up to a similar dollar value and quantity, but involve a very small percentage – less than five percent — of the total volume of wool consigned to China.

“It’s still significant if you are the exporter affected, but compared to the amount of business we do in China it is not much.”

As well representations made to the IWTO, Mr Lamb said ACWEP would speak with the Federal Government and the Department of Foreign Affairs and Trade. He said the Federal Government has been urging increased trade with countries other than China, and specifically India, “as their great white hope”.

“And they’ve got no idea just how hard it is to do business there.”

Mr Lamb said these issues have affected the willingness of Australian exporters and traders to take on business from Indian clients, although the small amount of trade into India now was more due to the impact of COVID-19.

“But when that does correct itself, India is going to find itself in severe difficulties in securing Australian wool.”

Mr Lamb said the first issues with Indian contracts started in April-May this year with the dramatic drops in auction wool prices. The benchmark AWEX Eastern Market Indicator dropped from 1442c/kg to 1287c/kg in early May and continued to fall to 1110c/kg by the end of June. By the first week of September the EMI hit 858c/kg, its lowest point since 2002, and since then has recovered on a fluctuating path to 1219c/kg last week. The EMI moved down 71 cents yesterday and 10 cents today to close at 1138c/kg clean.

IWTO urged to take action on trade issues

A letter from Mr Lamb and ACWEP executive director Peter Morgan to IWTO president Wolfgang Edmayr this week said that, initially, most of the difficulties were associated with some individual importers in China who demonstrated a total reluctance to honour contracts.

“However, Australian exporters have consistently (but not exclusively) reported that their experience with importers in India far outweighs the difficulties experienced in China.”

Mr Lamb and Mr Morgan said ACWEP is aware that India has not been a member of IWTO for some years.

“However, we believe that it is essential that we advise you of the current untenable situations experienced by members of the Australian wool export industry.

“Australian wool exporters have traded with India since the mid-1950’s, building some strong and long term relationships with members of the Indian industry over the period since then,” they said in the letter.

“However, they have reported situations this year which can only be described as deplorable; and a threat to the integrity of trading outcomes.

“It is important to be aware that the deterioration in current trading relationships have set trade relations back to the extent that it will take years to recover, if at all.”

Mr Lamb pointed out that there had been a lack of response to communications from Australian exporters.

“In some circumstances, exporters have reported that Indian corporate mills have gone months without even returning a simple email.

“Contracts have been deemed to not be worth the paper they are written on by Indian clients; for example, contracts were re-negotiated only to be then cancelled a second time in some cases,” he said.

Other issues have included non-opening of Letters of Credit; or refusal to open Letters of Credit unless the exporter accepted a lower price.

“Exporters have been left with very dear stock that was purchased for contracts that were either dishonoured or are still subject to renegotiation.

“Some dishonoured contracts were cancelled without notice or any other form of communication,” he said.

Mr Lamb and Mr Morgan told Mr Edmayr that ACWEP is advising the Australian Government of the difficulties experienced by exporters; and will be asking them to communicate this information to the Indian Government.

“We will also be asking them to ensure that the Indian Government is aware of the seriousness of this situation and the consequent threats to trade.”

The ACWEP leaders said Australian wool exporters have also reported instances of similar difficulties in trading with some European clients that add to the list of problems incurred this year.

ACWEP believes there is a major role for IWTO in addressing these issues as the peak international wool industry organisation.

“As is well known, IWTO’s origins lie in the development of arbitration procedures in response to the need for a better way of dispute resolution.

“We are aware that India does not have full Membership of IWTO,” Mr Lamb and Mr Morgan said.

“Nevertheless, we believe that IWTO needs to draw attention to the behaviour of Members of the Indian industry.

“Australian exporters also believe it is important that members of the Indian industry are fully aware of the serious impact of their actions on Australian suppliers.”

 

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Comments

  1. Andrew Whitelaw, November 2, 2020

    In an earlier Sheep Central article ‘Caution urged around wool stockpile estimates’, there was some discussion about extremely high stock levels. That probably wouldn’t have helped matters.

  2. Peter Small, October 28, 2020

    When the Australian wool market collapsed in 1972, Japan was the principal buyer of Australian greasy wool. As the market dropped, the phone rang to Australian wool exporters cancelling bought positions. Exporters have long memories and the Japanese quickly learnt, if they were going to do business with Australia they must honour contracts, and subsequently they became very honourable buyers.
    India, the country Scott Morrison wants us to replace China with, has always been doubtful, so I would suggest Australian exporters give Indian companies a wide berth and save themselves a lot of sleepless nights.
    Can India like Japan, ever learn to become an honourable buyer? Perhaps, perhaps not. Honouring contracts, written or verbal, is, I believe, cultural. Of course, every culture, including our own, has its fair share of crooks.

    • Josh Lamb, October 28, 2020

      As you said Peter, every culture has these problems, including our own. We want India to be competitive in the market, because we need more competition and hopefully we can work through these issues to make that happen.
      It’s worth noting it does not include India as a whole. There are several mills in India as good as any in the world and they are valued highly by Australian exporters; however, we do have issues that need addressing for the overall health of the wool industry.

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