Australian explosives maker Orica Ltd., Melbourne, on Feb. 26 issued a trading update that points to below expectations for its earnings before interest and tax (EBIT) for first-half FY2021 (Oct. 1-March 31). The group updated on the key factors reducing EBIT in the reporting period, but did not provide specific forecasts.
Orica said the ongoing trade tension between Australia and China is impacting demand in its higher margin Australian thermal coal market. In the first half of FY2021, the group now expects demand for its products and services from affected mines to be approximately 60,000 mt of ammonium nitrate (AN) lower than the prior corresponding period (pcp).
COVID-19 also continues to be “a significant source of uncertainty” for the group. It said activity in Colombia is “significantly lower” than the pcp due to major customers’ temporary and permanent mine closures.
Continuing social unrest in Peru and strikes in Chile have also reduced demand for products and services in those countries, and COVID-19 has led to “an unfavorable but temporary shift in the product mix of customer demand in Peru,” said Orica.
The group said mining activity also remains severely disrupted by the pandemic in several other regions, including part of Europe, Africa, and Mexico, “where the virus has been widespread and its impacts more prolonged than our original expectation.” It also cited lower volumes in Indonesia due to the ongoing effects of COVID-19 and adverse weather.
On the positive side, Orica noted mining activity in Australia, the U.S., and Canada has remained largely resilient to COVID-19.
At the time of its FY2020 earnings announcement in early December, Orica had expected AN volumes, excluding Peru’s Exsa, in FY2021 to grow by approximately 1 percent on FY2020, based on its then view of mining activity (GM Dec. 4, 2020). Exsa AN volumes for FY2021 had been expected to be approximately three times that of FY2020, given a full-year of contribution.
A Bloomberg report following the trading update cited a note by Goldman Sachs analysts, led by Alex Karpos: The update suggested “much harsher near-term headwinds than we currently forecast,” they wrote. Goldman sees Orica’s fiscal first-half EBIT down A$15 million year-on-year (IH FY2020: A$308.6 million).
Orica is scheduled to report is first-half FY2021 financial results on May 13.