Orica boss warns soaring gas prices threat to industry

Orica says Australia risks losing more manufacturing if soaring gas prices are not tamed with overseas investments now helping cushion the blow for the explosives giant.

Orica's Yarwun manufacturing facility in Queensland. Picture: Orica

Orica boss Sanjeev Gandhi says the country risked losing more manufacturing if soaring gas prices were not tamed as a matter of urgency.

Mr Gandhi, who on Thursday unveiled an increase in interim profit at the 150-year-old explosive and chemicals giant, said he had invested $1.5bn in overseas assets in the last six months rather than in Australia because of unsustainably high domestic gas prices. Orica uses gas as a feedstock rather than a fuel.

“None of that investment went into Australia where gas prices have tripled in the last 10 years while in the US they are at record lows,” Mr Gandhi said. “All manufacturers in this country are struggling with energy costs and urgent action needs to be taken.

Mr Gandhi warned last month that energy-intensive industries in Australia were “genuinely living on the brink” following the collapse of plastics manufacturer Qenos.

Food giant Mars warned this week that Australia is one of the most expensive places in the world to manufacture food, with gas costs increasing 106 per cent in the past two years.

“Australia is one of the most expensive countries in the world for heavy manufacturing,” said Mr Gandhi. “Labour costs are high, productivity is low, energy and gas prices are very very high and we have the added pressure of decarbonising, losing competitivity.”

He said he welcomed the Albanese Government’s new gas strategy that would lock in gas as a transition fuel in the move to renewables, but wanted to see more details.

Orica boss Sanjeev Gandhi

Mr Gandhi said more needed to be done to increase gas supply and reform gas price mechanisms including the current cap. He pointed to the more favourable gas pricing regime in Western Australia where Orica competes with Wesfarmers’ chemical operations. Wesfarmers

supplies ammonia, ammonium nitrate and industrial chemicals to the resource and industrial sectors. Western Australia requires LNG producers to take measures to ensure adequate supply of gas for local use, including by reserving 15 per cent of production from each WA export project for domestic gas consumption.

Mr Gandhi agreed gas will be a vital transition fuel in the move to renewables with competitive pricing essential if Australia was to remain a competent producer of everything from explosives and fertilisers to plastics and food.

Orica, which first supplied explosives to the Victorian goldfields in 1874, this year sealed a deal to buy US-based cyanide manufacturer Cyanco Corp for $640m to take advantage of lower gas prices in that country. Cyanco produces sodium cyanide used in the extraction of gold from ore. Orica shares rose 1.5 per cent $18.57 on Thursday.

Orica already operates a sodium cyanide plant at its Yarwun complex in Queensland, but Mr Gandhi said the US plant offered far better margins than expanding its Australian operations.

An Orica mobile manufacture unit carries bulk explosives to a mine site.

Cyanco is expected to produce earnings of between $40-$45m over the year.

Manufacturing Australia says local producers are forking out 50 per cent more for electricity and 200 per cent more for gas than their US competitors.

Orica also has invested $560m to purchase Canadian mining tech firm Terra Insights as it moves to bolster its ability to apply technology to blasting, drilling and other areas of resource extraction. Terra Insights provides monitoring technology for mines, railways and pipelines.

Mr Gandhi said that despite inflationary pressures, higher energy costs, supply chain disruptions and geopolitical risks the company had delivered another strong performance.

Orica reported interim net profit after tax of $337.5m, including $158.4m from significant items, versus $122.6m in the first half of 2023.

Underlying net profit after tax rose 10 per cent to $179.1m while underlying earnings per share rose 2.8 cents to 38.8 cents. Earnings before interest and tax rose 10 per cent to $354m, with the company declaring an interim dividend of 19 cents per share, up 6 per cent.

Mr Gandhi said Orica’s core blasting business, including bulk explosives and packaged explosives, continued to strengthen, supported by strong customer demand as well as increased earnings from high margin premium products and technology.

“The strength and resilience of our people and unmatched global product portfolio enables us to adapt to and mitigate challenging macro-economic and geopolitical challenges,” he said.

Originally published as Orica boss warns soaring gas prices threat to industry