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UPDATE 2-Brambles scraps investment in plastic pallets for Costco suppliers

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* Co says cost of plastic pallet up 50% from Sept

* Local media estimated nearly A$1 bln investment

* Pallets released from Costco system to be redeployed (Adds more details, background)

June 30 (Reuters) - Australia's Brambles Ltd said on Thursday it had cancelled its investment in plastic pallets for customers who supply to Costco Wholesale Corp, ending a three-year old project after the companies failed to agree on pricing and commercial terms.

The decision takes the company out of the U.S.-based big-box retailer's plans to migrate all pallets used in its supply chains to plastic over time, given their longevity and low maintenance needs.

The Australian supply chain logistics firm said last year it would invest in Costco's shift to plastic pallets only if return on capital invested (ROCI) was over 15%.

Brambles had spent about A$20 million so far on trials of the plastic pallets, according to local media.

The companies were unable to formulate a model that would cover the additional capital cost of a plastic pallet. Local media reports last year estimated Brambles would need nearly A$1 billion ($689 million) for the transition.

However, in light of current market volatility, the shift was deemed "commercially prohibitive" by Costco's suppliers and, without adequate cost recovery, dilutive to Brambles' ROCI, Brambles said in a statement.

The company said it would look to offset the impact from Costco's shift through new contracts and would redeploy wooden pallets to new and existing customers.

"Costco remains a highly valued retail partner in North America and we will continue to work closely with them as they assess the viability of other options to convert to a plastic pallet pool," said CEO Graham Chipchase.

Brambles, which owns and rents crates and pallets globally to consumer goods companies, has been under investor scrutiny for its proposal to build plastic pallets for its U.S. customers, including retailing giant Walmart.

The company was recently a takeover target by European private equity firm CVC Capital Partners, and has benefited from a crunch in container availability amid a pandemic-fuelled boom in e-commerce.

Costco was unavailable for a comment outside U.S. business hours.

($1 = 1.4520 Australian dollars) (Reporting by Savyata Mishra in Bengaluru, Additional reporting by Jaskiran Singh; Editing by Sherry Jacob-Phillips, Rashmi Aich and David Evans)