The struggling wool trading industry has suffered a further blow with carpet-making giant Cavalier Corporation winding down the wool trading side of its business.
Managing director Alan James announced yesterday that Cavalier's merchant scouring operation, E. Lichtenstein & Co, would begin to scale down its operation, and move towardssupplying wool largely for Cavalier's own carpet-making needs.
Mr James said the company would remain involved in providing scouring services to other wool merchants, but there would be redundancies at the Onehunga wool scour.
Wool trading had consistently failed to produce an adequate return on the high level of funds it demanded, Mr James said, and Lichtenstein had been unable to cover the costs of its capital.
"The problem lies with the large quantity of wool that the company has to own at all times to adequately hedge its forward order book," Mr James said. "There is insufficient margin in the business to provide an adequate return on that, and we see nothing in the forward outlook likely to change the situation."
Roger Buchanan, the Wool Board's general manager of policy, said the news did not come as a huge surprise.
"Cavalier have signalled for some time that this is a difficult part of their business, and it's not an area where people have been making any money," he said.
"There has been excess scourers for New Zealand's scouring capacity, and we have seen some contraction of that lately."
Mr James refuted suggestions that the move was related to the recent McKinsey report, which recommended huge changes to the wool industry.
He said Cavalier would sell Elco Direct, the procurement arm of Lichtenstein, and hoped to free up $40 million in capital that was currently employed in wool trading. This would make Cavalier debt-free and give it the chance to expand.
Carpets had been responsible for well over 90 per cent of the company's tax-paid earnings in recent times.
