Explosives and fertiliser maker Incitec Pivot is building its new chemical plant in the US rather than Australia because of stunning cost differences.
The $US850 million ($A919.66 million) ammonia plant in New Orleans would cost closer to $A1.4 billion to build in Australia, chief executive James Fazzino said.
Australia had a great opportunity to become the food bowl for Asia – but it must get its productivity and costs under control, he said.
Incitec’s decision follows a similar view taken by South Australian agribusiness, Thomas Foods International, which is building a processing plant in Philadelphia.
“The cost of building and operating a processing and value-adding plant in Philadelphia is half what it costs in South Australia,” Thomas Foods head, Darren Thomas, told InDaily last week.
“This is not a case of doing something in a developing country on cheap labour – this is the USA where the cost of doing business is so much cheaper.”
Incitec Pivot’s James Fazzino had the same view on labour costs.
“The difference is in the US the project has about 35 per cent of the cost being labour, it Australia it would be more like 60 per cent,” Fazzino told reporters as the company released half year financial results.
“It is stunning to compare the efficiency and skills you get on site in the US with what you get in Australia.”
Another factor in America’s appeal for the company is that country’s shale gas revolution, which has led to cheap energy and a rebirth of the chemical manufacturing industry – which include many of Incitec Pivot’s customers.
“The fact you have got a very supportive environment in terms of gas, it is obviously the place at the moment for us to invest,” Fazzino said.
The company’s key customers are in mining and agriculture.
Incitec Pivot increased half year net profit by seven per cent to a better than expected $115.7 million, driven by a 10 per cent jump in explosives earnings.
That was achieved on the back of better cashflow at its new $1 billion Moranbah ammonium nitrate plant in central Queensland – supplying the coal industry – along with cost cuts.
Fertiliser earnings edged two per cent higher, due to weaker prices and drought in northern Australia.
Fazzino gave a negative assessment of the current state of the mining industry in Australia.
However he was optimistic about the company’s strategy of being leveraged to the urbanisation of China and Asia, plus chemical manufacturing in the US.
“In terms of agriculture there are more mouths being fed every day in Asia in particular,” Fazzino said.
“Those mouths want to eat higher protein meat and beef rather than grains and that is a positive thematic for fertilisers and agriculture as it takes around three times more intensity to supply protein.”
The company’s Moranbah plant would ramp up to a full production in 2015, more than doubling earnings and cash in the Asia Pacific explosives business, he said.
Incitec Pivot shares gained three cents, or 1.1 per cent, to $2.85.
