Production troubles continue to undermine Incitec Pivot's ambitions for its historic fertiliser division which it says may still be sold off, but there is no certainty a deal will be reached.
The fertiliser and explosives giant, which takes its name from the 2003 merger of two major east coast fertiliser businesses, has told shareholders it is still talking with a potential buyer, believed to be Indonesian chemical kingpin, Papuk Kaltim.
However, the process was complex and discussions were incomplete and confidential.
At the same time, however, global fertiliser prices have fallen considerably this year and the company's Queensland mining and processing operation has been handicapped by more recent cost setbacks relating to acid and gas supplies.
Although fertiliser demand had improved, the company said ammonium phosphate production from the Phosphate Hill plant in western Queensland would be slowed for three weeks because supplies of sulphuric acid used in the process were being restricted.
Its nearby Mt Isa site converts sulphur from the Glencore copper smelter to create sulphuric acid, but the acid drying tower had degraded faster than expected.
Incitec Pivot had been forced to commence about $4 million in maintenance work at the acid plant a year earlier than planned.
The slowdown would cut fertiliser output by about 30,000 tonnes and cut earnings from Phosphate Hill by as much as $15m.
Under capacity
Phosphate Hill has capacity to produce about 1m tonnes a year, but it was likely to produce only about 870,000t to 880,000t during the 2022-23 financial year.
Already this year Incitec has reported shortages of gas from its Northern Territory supply source would cut the plant's earnings by between $75m and $90m because fertiliser output would be reduced to about 930,000t, or less.
Fortunately, another gas source from Power Water Corporation had been above recent expectations, but the company was still looking at a number of alternative supplies to fill the shortfall gap in the near term.
Incitec Pivot tipped earnings from its fertiliser distribution business would be at the lower end of their usual range of $40m to $50m at the end of its trading year in September because margins remained depressed in the "negatively trending market".
It also noted farmers, squeezed by big input cost rises in the past two years, were switching to using less sophisticated, lower margin fertiliser products.
Incitec, which initially planned to split the fertiliser business from its Dyno Nobel sibling and separately publicly list it this year, said management was continuing to pursue a potential sale instead, but a transaction of this size was complex.
"The process is progressing in line with normal expectations ... IPL will keep the market informed of any material developments as, and when, required," it said.
The company has refrained from further mention of the proposed fertiliser demerger while considering a sale, although many shareholders remain unconvinced about the wisdom of the move.
In the meantime, its plans to sell its relatively new Waggaman ammonia plant in Louisiana for $2.5 billion were still awaiting US antitrust clearance, although Incitec Pivot was hopeful the US Trade Commission would make a decision at the end of 2023.
On the positive side of the ledger, the company also reported underlying earnings from its global Dyno Nobel explosives business were expected to be favourable in the second half of the year.
The North American operation was delivering better margins because of its focus on price and cost discipline, while contracts with Asia Pacific customers were in line with forecasts.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
