UPDATE: Glencore's Cotton Team Suffers Amid Volatility; Has New Leader

Like its peers, Glencore International PLC (GLEN.LN) suffered losses from the cotton market in 2011 as suppliers reneged on their Glencore contracts and the derivatives market disconnected from the physical market, the company's chief executive said Monday.

Glencore's agricultural products segment posted a negative adjusted earnings before interest and taxes, or Ebit, of $47 million in 2011, compared to a positive contribution of $717 million, largely due to the cotton team's trading activities.

Excluding the cotton division's losses, the group's entire marketing division would have posted a 10% rise in adjust Ebit in 2011, Glencore said.

Ivan Glasenberg told Dow Jones Newswires that the company has placed a Glencore grains trader to head up the new cotton team, which should help improve the division's performance.

Glasenberg didn't provide a name of the new cotton team leader, but people familiar with the matter identified him as Peter Poort, a trader with over 20 years experience at Glencore. Poort replaced Mark Allen, who had previously been hired from Noble Group.

"There was this massive volatility in the cotton market," Glasenberg said.

Prices rushed to a record $2.27 a pound a year ago as floods in Pakistan and export restrictions from No. 2 cotton grower India sparked supply concerns. Prices then slid for months, ending 2011 at 91.80 cents per pound. The price swing crushed margins at textile mills and apparel makers, and hurt cotton-trading margins at major commodity houses such as Olam International Ltd. (O32.SG), Noble Group Ltd. (N21.SG) and Glencore.

"Even if you hedged it out on the paper side of the business, you've got nonperformance from a larger amount of these suppliers during this high-price period," Glasenberg said. "They did not deliver, they actually sold in to the market on a spot basis and did not perform on the existing contract. So naturally you take a hit there."

He said Glencore's cotton trading business was also new, having been put together from outside the company. "It is something that we don't normally do in Glencore. We try to grow the people from within," he said.

"Had a Glencore guy been running that business at that time, yes, I believe that we would not have been exactly at this position but it was the vagrancies of the market during that period which caused us to take that hit as did all other trading companies," he added.

Front-month cotton prices on ICE Futures U.S. have shed more than 60% since hitting the record peak last year, as the high prices encouraged farmers worldwide to plant more of the fiber, creating a supply glut against a backdrop of still-lackluster demand.

Global cotton production in the 2011-12 season ending July 31 will hit a record 123 million bales, the U.S. Department of Agriculture said in its annual outlook last month. In the same period, global consumption of the fiber is forecast to fall by 4.3%. The more actively traded March contract was recently trading at 92.23c/lb.

-By Alex MacDonald and Leslie Josephs, Dow Jones Newswires; 44 20 7842 9328; alex.macdonald@dowjones.com

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