Explosives-Maker Orica Mulls Chemical Unit Sale After Review

Orica Ltd., the world’s largest maker of industrial explosives, is studying the possible sale of its general chemicals unit amid weak demand in the Australian and New Zealand manufacturing sectors.

The unit, which supplies sulfuric acid and other chemicals to customers including the auto, aviation, food and cosmetics industries, underwent an external review in 2013, Chief Executive Officer Ian Smith told reporters today in Melbourne.

Options now being considered range from a possible divestment to allocating more capital to the unit to spur growth, Smith said.

“It probably would make more sense to divest it than to throw capital at it,” said Ramoun Lazar, a Sydney-based analyst with UBS AG. “The focus over the last five years has been growing the mining services side of things and explosives.” The unit may be worth as much as A$1 billion, said Lazar.

Manufacturing lost 29,600 jobs in Australia in the 12 months to November, while Ford Motor Co. and General Motors Co. announced plans to cease production in the country after a strong local currency, which rose to a record in 2011, hurt exports. The Aussie has since declined, hitting a 3 1/2-year low this month.

“The outcome for chemicals is really a reflection of what’s going on in Australia from a general manufacturing viewpoint,” Smith said.

Melbourne-based Orica rose 0.7 percent to A$23.45 at the close in Sydney. It has declined 9 percent in the past year.

Chocolate Importer

The general chemicals unit, which includes a food business that’s Australia’s largest importer of chocolate, accounted for 17 percent of revenue in the 12 months to Sept. 30, Orica said in its annual report lodged on Dec. 10. The unit’s earnings before interest and taxes declined 9 percent to A$92 million ($80 million), compared with the previous year.

Demand for explosives and mining chemicals will improve in the second half of fiscal 2014 amid growth in areas including European construction. “There is a recovery curve going on,” Smith said.

Continued growth in India, China and emerging markets including Russia and Africa could see demand for some commodities outstrip supply within 18 to 36 months as producers trim capital spending on expansions, he said.

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