Incitec wary of soaring gas prices
The explosives and fertiliser maker reported net profit of $110.2 million for the six months to March 31 - $33 million less than the previous corresponding period.
The global company is a big natural gas user and heavily exposed to Australian prices that could double due to the suite of liquefied natural gas projects that will export product overseas.
Incitec chief executive James Fazzino said the rising costs of doing business in Australia contrasted sharply with the US, where the manufacturing sector was enjoying a resurgence led by the availability of cheap shale gas.
Mr Fazzino said Incitec had yet to secure gas supplies with oil and gas producers for when current contracts expired in coming years.
Earnings in Incitec's fertiliser business fell 19 per cent in the period due to weaker demand and a decline in urea prices. This was partly offset by a 7 per cent jump in explosives earnings. Shares gained 10¢, or 3.5 per cent, to $2.93.
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Incitec Pivot’s first-half profit slump was driven by a combination of a high Australian dollar and weak fertiliser prices, which reduced earnings compared with the previous corresponding period.
Incitec reported a net profit of $110.2 million for the six months to March 31, which was $33 million less than the previous corresponding period.
Incitec is a big natural gas user and is heavily exposed to Australian gas prices. The company warned that local gas prices could double because of a suite of LNG export projects, which would put further pressure on its manufacturing costs.
James Fazzino said rising costs of doing business in Australia stand in sharp contrast to the US, where manufacturing is benefiting from cheap shale gas — giving US producers a cost advantage.
No. Incitec said it has yet to secure gas supplies with oil and gas producers for when its current contracts expire in the coming years.
Earnings in Incitec’s fertiliser business fell 19% due to weaker demand and a decline in urea prices, while explosives earnings rose by 7% during the same period.
Shares rose 10 cents, or 3.5%, to $2.93 after the company released its first-half results and commentary on costs and gas exposure.
Investors should watch local gas price trends and the company’s progress in securing future gas contracts, movements in urea and fertiliser prices and demand, the impact of LNG export projects on Australian gas costs, and currency effects such as the strength of the Australian dollar.
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