Orica chief calls for action on dollar as mining unit struggles
The dollar was at $US1.052 on Thursday, a day after Treasurer Wayne Swan described the currency as "defying gravity".
Speaking at the Melbourne Mining Club, Orica chief executive Ian Smith said mining and manufacturing companies were now being forced to contemplate the cost of operating in Australia if the dollar stayed at parity for the next five to 10 years. "It is very hard," he said. "I think the chances of that are relatively low, but you shouldn't have policy that extends the length of time, so the Aussie is artificially higher than it should be.
"We haven't got any actual policies in place that reduces the Aussie dollar."
Orica, the world's biggest explosives manufacturer, has been trying to turn around its struggling mining services unit Minova after it was forced to write off $247 million against the business last year. It has blamed low demand and competitive pricing in the US for the write-off.
Over the past 18 months, the company has also been hit with gas leaks and a series of production problems at its Kooragang Island plant in Newcastle, which forced the plant to be shut down several times.
But Mr Smith, who took over as chief executive last year following a five-year stint at the helm of Newcrest Mining, said the company's long-term outlook remained positive.
"At the moment we might be going through some hiccups, and gas may be thrust into the equation," he said. "But the general trend point is there."
He called on the government to open up more gas reserves "to create the most competitive and open market we can".
"A lot of that has not been happening," he said.
Mr Swan said at a Bloomberg economic summit that the currency was "defying gravity".
"What we are actually witnessing in our economy at the moment ... is the dollar defying gravity and essentially not moving as the terms of trade come down," he said. "That has put enormous pressure not just on profits of mining companies, not just on profits of exporters, but across the whole economy, so all of our profits-based taxes have been down substantially."
The Treasurer said the budget would adjust the medium-term fiscal strategy to address growth and jobs.
Frequently Asked Questions about this Article…
Orica CEO Ian Smith said the government is not doing enough to rein in the strong Australian dollar, which has stayed above US$1 for a record nine months. He warned that if the Aussie stayed at parity for the next five to ten years it would make it very hard for mining and manufacturing companies, and said "we haven't got any actual policies in place that reduces the Aussie dollar."
The dollar was around US$1.052 at the time of the comments. A strong Australian dollar can squeeze export-focused companies' profits because it reduces the value of overseas earnings in local currency, which is a key consideration for investors in mining and manufacturing stocks.
Orica was forced to write off US$247 million against its mining services unit Minova last year, blaming low demand and competitive pricing in the US. Large write-offs like this can weigh on earnings and may affect shareholder returns and investor confidence.
Over the past 18 months Orica has experienced gas leaks and a series of production problems at its Kooragang Island plant in Newcastle, which forced the plant to be shut down several times. Repeated shutdowns can disrupt production and financial performance.
Yes. Ian Smith, who became CEO last year after five years leading Newcrest Mining, acknowledged short-term hiccups and operational issues but said Orica's long-term outlook remained positive.
Ian Smith called on the government to open up more gas reserves to "create the most competitive and open market we can," arguing that greater gas availability would help make Australian industry more competitive.
Treasurer Wayne Swan used the phrase to describe how the Australian dollar remained strong even as the terms of trade fell. He said the persistent strength has put enormous pressure on profits for mining companies and exporters and reduced profits-based tax revenues across the economy.
The article suggests everyday investors should note that a strong Australian dollar can pressure exporters' profits, while company-specific issues—like Orica's US$247 million Minova write-off and Kooragang Island shutdowns—can also hurt earnings. Investors in mining or related stocks may want to watch currency trends, company operational updates, and any government policy or budget changes that aim to address competitiveness.
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