Although there is no “official agenda” to the discussions between French multinational Louis Dreyfus Commodities and its Singapore-based rival, Olam International, the possibility of a merger still has the cotton industry buzzing more than a week after news of the discussions broke. While the topic might be red-hot, the impact it could have is leaving many cotton industry veterans feeling blue.
"The proposed merger is very widely watched by the industry,” Herman Kohlmeyer, a cotton broker with Michael J. Nugent, tells Cotton International. “Whether it happens, and what form it will take, are both problematic. It's part of a trend of consolidation in many of the commodities industries, and its completion will be viewed only with sadness by the remaining members of the trade.”
If Dreyfus, a 159-year-old, family-owned trading house, merges with Olam, one of the Singapore Stock Exchange's top 40 listed companies, the resulting company would be a US$15 billion commodities giant that handles as much as 30 percent of the world’s exported cotton bales.
While certainly a development that they are watching closely, the consolidation trend isn’t of great concern to mills at this point -- at least, not as big a concern as the rising cost of cotton, which has retreated only slightly after hitting a 15-year high in September. According to Christian Schindler, director-general of the Zurich-based International Textile Manufacturers Association, raw material costs are currently more unsettling to spinners than a lack of traders to choose from. Indeed, price volatility is one of the reasons for consolidation because mergers create larger companies that are able to spread their risks across multiple commodities.
Wildly fluctuating prices and a shrinking number of players are just the latest concerns in an industry that is still trying to stabilize after the turbulence of recent years. “The cotton merchandising sector is just coming out of the shock of the events of March 2008, and this merger -- should it take place -- will not be a happy event," Kohlmeyer says.
