Strategic review of chemicals business concludes
Two of Penrice’s three chemicals businesses units are performing well. Penrice’s sodium bicarbonate business, a predominantly export business to food and pharmaceutical customers, has doubled sales and profits over the past five years. Penrice’s new selective salts recovery (SSR) technology made its first profit in FY2012 and has potential to profitably deliver wastewater treatment solutions for the coal seam gas (CSG) industry.
Penrice’s soda ash business has been under extraordinary pressure. Imported soda ash continues to be substantially (over 40%) cheaper because of a number of factors which are likely to continue for the foreseeable future. These factors are the unprecedented strength of the Australian dollar, lower international shipping costs, increasing energy and labour costs, increasing taxes (notably the carbon tax) and increasing regulatory compliance costs.
These have also added to the costs of domestic soda ash manufacture relative to imports. These same pressures are also playing out across Penrice’s soda ash customer base - mainly glass and detergent manufacturers - creating significantly less demand for soda ash. The strong Australian dollar has led to domestic bulk wine being bottled overseas and less demand for Penrice’s soda ash.
Continuing poor demand associated with the downturn in Australian building and construction activity has meant considerably less domestic flat glass manufacture and therefore less demand for Penrice’s soda ash.
Penrice does not see any significant change to these factors occurring in the foreseeable future. These factors have combined to reduce the profitability of Penrice’s soda ash business, which continues to make a considerable loss in FY2013. The uncertainty associated with these factors, such as whether some are more structural than cyclical, has led the company to decide to import soda ash rather than manufacture it.
Closure of soda ash production at Adelaide plant
As part of its strategic response to continuing decline in demand for soda ash and increasing costs, Penrice intends to close soda ash production at its Osborne, Adelaide chemical facility in June 2013.
Regrettably, this will reduce production and ancillary roles and impact 60 jobs at its Osborne plant from May 2013 onwards. Penrice will consult with employees and their representatives to explore all options, including mitigating job losses, potential redeployment within Penrice where possible and redundancy payments consistent with relevant instruments.
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