Shares in Incitec Pivot, the country’s largest fertiliser supplier, took as pounding yesterday, losing 30% in value after revealing a surprise downgrade in earnings and a delay to a Queensland explosives plant.
Slumping demand for fertiliser here and offshore and the downturn in the mining industry (especially in the huge Powder River Basin coal mines of the US, the heart of the American power supply sector) has hit the company hard and it is now looking at a 30% fall in net earnings for the year to September 2009.
Falling fertiliser prices are also not helping.
From yesterday’s statement everything seemed to be tracking OK until demand slumped in January.
The shares fell by more than 35% at one stage to end down 30.4%, or 78c at $1.78.
The news of the delay in the Queensland explosives plant also hit the share prices of the builder, United Group, down more than 5% to $7.55, and gas supplier, Arrow Energy, off 6c at $2.20.
IPL said its net profit for fiscal 2009, pre-individually material items, is likely to be about $450 million, against the $657 million earned in the year to September 2008.
The fall is made even worse because the figure includes a full year from the Dyno Nobel company whose explosives operations have been badly hurt by the slump in mining, especially coal mining in central Queensland and in the huge Powder River Basin in the US.
In response to the market downturn, Incitec Pivot says it has slowed the construction of the new plant at Moranbah in Queensland, forcing contractor United Group also to downgrade its earnings guidance, hence the price fall for United..
Incitec said the forecast assumes current market conditions prevail and takes into account the difficulty in forecasting expected full year earnings in the current economic environment.
Incitec said individually material items, primarily relating to the Velocity efficiency program, are likely to be a net cost of $50 million.
"Consistent with the developments in January, Incitec’s 2009 earnings are likely to be adversely impacted," it said.
The company announced that, "While the business performance for quarter 1 2009 (October – December 2008) had been in line with expectations, the outlook had deteriorated materially in January 2009.
"This is a result of the significant slowing of the global economy, with the US economy now in recession and, importantly, Asian economies have followed rather than being decoupled."
CEO Julian Segal said in a statement that: "January 2009 has seen a slower than expected pick up in international demand for fertiliser.
"Consequently, while we believe fundamentals remain strong and markets will eventually improve when demand returns, recent developments indicate that this may not occur until the second half of calendar year 2009, after the Australian winter crop planting window.
"This view is consistent with the news flow from major international industry participants released in January” said Managing Director & Chief Executive Officer, Julian Segal.
"In the Dyno Nobel explosives business, the North American business has slowed, with coal production cutbacks in the Powder River Basin and accelerating softness in the quarrying and construction sector.
In Australia, 2009 demand is now expected to be on par with 2008 and the actions taken by mining companies, in response to the global economic situation, have directly impacted forecast ammonium nitrate (AN) demand growth in the medium term.
"The forecast lag in Queensland AN demand growth pushes the demand and supply balance out 12 months to 2014 rather than 2013. Consequently IPL has reviewed the implications for the off-take loading of the planned 330kt Moranbah AN facility.
"Consistent with the developments in January, IPL’s 2009 earnings are likely to be adversely impacted. Assuming current market conditions prevail, and taking into account the difficulty in forecasting expected full year earnings in the current economic environment, 2009 full year net profit after tax (NPAT) before individually material items is likely to be circa A$450M.
"Individually material items, primarily relating to the Velocity efficiency program, are likely to be an after tax cost of A$50M.
"Following the revised forecast AN demand growth for Queensland coal, IPL has decided to slow the construction of the AN facility at Moranbah in Queensland to better align demand and supply.
"During this period the project focus will be on detailed design engineering. “We remain confident about the future of this project and the value it will deliver to IPL.
"However, as demand growth is forecast to pause, we consider it prudent to align supply to match demand” Mr Segal said.
While mechanical completion will now be up to 12 months later than planned, beneficial operation will commence from quarter 4, calendar year 2011, only 6 months later than previously expected. Allowing for the revised timeline, the project still meets IPL’s strict financial criteria.
“We have commenced discussions with our alliance partners for the project, United Group Resources Pty Ltd, Bilfinger Berger Services (Australia) Pty Ltd and BGC Contracting Pty Ltd.” “It is regrettable that there will be temporary job losses in the Moranbah community as a result of this decision” Mr Segal said.
The gas feedstock supplier, Arrow said in a statement to the ASX:
"Earlier today Incitec Pivot Limited (AXIAL) announced that it was slowing the construction of its Moranbah ammonia nitrate plant.
"The Moranbah Gas Project wh
