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Orica CEO Caldreron: ACCC’s gas price transparency move will help local firms

Orica CEO Caldreron: ACCC’s gas price transparency move will help local firms

The corporate watchdog’s latest efforts to improve transparency in the east coast gas market should help gas users secure better deals, according to Orica chief executive Alberto Calderon.

Mr Calderon, who has been a prominent voice in the debate on the east coast gas market, welcomed the recent announcement from the Australian Competition & Consumer Commission that it would start to publish so-called LNG netback prices. These prices represent the local equivalent of international liquefied natural gas prices, less the costs of liquefaction and transport, and should guide gas consumers in their price negotiations.

“We’ve been supportive of the plans of the government to put the (gas) market in control, and lately the ACCC and the initiative of (chairman) Rod Sims of publishing an LNG netback price is very important,” Mr Calderon told The Australian.

“There’s no reason why manufacturers should need to pay above the LNG netback price. You could argue that a country that produces a resource should be below that but, for sure, it should not be above that.”

Orica is a major industrial consumer of gas, which it uses to manufacture explosives for the mining industry.

While its existing gas contracts have helped protect Orica from the full impact of the rising gas prices on the east coast over the past year, its latest half-year accounts — released on Monday — showed that contracted increases in gas and ammonia prices shaved $16 million off its margins.

Mr Calderon said LNG netback prices suggested local gas consumers should be paying around $8.50 a gigajoule. That’s well down from the peak of more than $20 a gigajoule early last year.

“These producers of LNG were really having the time of their lives at the cost to domestic manufacturing,” Mr Calderon said.

“It’s now much better.”

Mr Calderon’s comments followed the release on Monday of Orica’s latest half-year financial result, which saw the company plunge to a statutory loss of $229m.

The result reflected unplanned outages across its Australian manufacturing plants, as well as a $204m writedown of its Minova business and a $115m increase in environmental remediation provisions at its Botany site in NSW.

While Orica had previously flagged the various operational issues and accounting adjustments, the stock fell more than 6 per cent in the wake of the announcement.

Several analysts have cut their earnings forecasts for Orica in the wake of the latest figures.

Citi analyst Daniel Kang said in a research note that the latest earnings reiterated the bank’s “sell” recommendation.

“Notwithstanding improving trends in explosives markets, which we believe has been a key driver of Orica’s recent share price strength, operational issues remain unresolved,” Mr Kang said.

“With the stock trading at well above historical levels, we believe Orica remains overbought.”

Morgan Stanley analyst Niraj Shah, who has an “overweight” rating on Orica, said the first-half result was “disappointing” and lowered his 2019 earnings forecasts for the group but said improving conditions would help boost Orica’s second-half figures.

“The range of issues evident in the first-half result make it difficult to retain a focus beyond the immediate term. While earnings certainty and evidence of operational discipline is required for sustained outperformance, we continue to believe that FY18/19 is likely to prove an inflection point,” Mr Shah said.

The Australian

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