Boral suspends clinker plant production
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Nicholas Grove is a Morningstar journalist.
Boral Limited (BLD) on Thursday said it will indefinitely suspend production of clinker at its Waurn Ponds cement plant in Victoria from April 2013, as a result of an "increasingly competitive domestic and international landscape".
Boral CEO Mike Kane said the high Australian dollar and low shipping costs, together with rising energy and other manufacturing costs, are all contributing to higher costs of domestic clinker production relative to imported clinker and cement.
"A continued low level of demand associated with the downturn in Australian building and construction activity is also adversely impacting the profitability of Boral's cement business, where high fixed cost manufacturing assets continue to be underutilised," Kane said.
The clinker manufacturing assets have a book value of approximately $100 million, Boral said in a statement.
The site will continue to operate as a cement milling facility using imported clinker. Boral said the change will result in 25 to 30 per cent of its clinker requirement being imported, which is in line with the Australian industry average.
The planned suspension will impact the jobs of around 90 employees at Waurn Ponds, Boral said.
"It's always sad to see Australian jobs go, and for the 90 employees of Boral's Waurn Ponds clinker facility it's not the Christmas surprise they have would have hoped for - but the closure was inevitable," Morningstar industrials analyst Nathan Zaia said.
"Boral has been somewhat slower than peers, particularly Adelaide Brighton (ABC) when it comes to substituting locally produced clinker with cheaper imports from Asia - a trend we expect to continue.
"Sure, lower shipping rates and a strong Australian dollar are lending a hand at the moment - but larger producers in Asia have a permanent advantage on the cloud hovering over Australia in the form of high energy costs, high wages and low productivity."
Kane said Construction Materials in Australia is a core business for Boral, with cement remaining a critically important product in the company's integrated position.
"However, across all of our businesses we need to ensure that we are aligning our domestic production with demand levels, and that our cost structures are globally competitive and can be sustained through the cycle," he said.
At the announcement of Boral's half-year results in February 2013, Kane said he will provide an update on the outcome of a broader review work that is underway across the company's businesses.