Wesfarmers revs up nitrates race

LOCAL industrial giant Wesfarmers’ move to commit $45 million to further develop its plans for a massive upgrade of its ammonium nitrate plant at Kwinana further muddies the waters surrounding the future of Western Australia’s fast-growing explosives market.

Wesfarmers’ decision to fund long-lead equipment orders and continued detailed engineering work for its 260,000 tonnes per annum, $500 million proposed expansion of its Kwinana ammonium nitrate production facility is something of a challenge to other local players.

Wesfarmers completed its existing 520,000tpa ammonium nitrate plant in 2008 and is the major supplier to the resources sector, which uses an estimated 430,000tpa of explosives.

In a statement, Wesfarmers chemicals CEO Ian Hansen said it believes the state’s explosives market would not match its expanded capacity until 2020.

The prospect of continued local oversupply is not viewed as anti-competitive in the sense that ammonium nitrate is readily traded in international commodities markets. Nevertheless, there is clearly a race on to build the next phase of WA capacity as the mining sector revs up explosives consumption.

Until its financial difficulties late last year, the joint venture partners in ammonia producer Burrup Fertilisers were viewed as the frontrunners to establish a 330,000tpa ammonium nitrate plant near their existing production facilities on the peninsula after which the company is named.

But financial dramas late last year brought in the receivers, who have put a 65 per cent stake in Burrup owned by the Oswal family up for sale. Among the potential bidders is Yara International, a global player in the sector which already holds the remaining 35 per cent, as well as local fertiliser and explosives group Wesfarmers, Orica, Incitec Pivot and a Chinese group Sinofert.

Of these, Incitec Pivot already has its own plan for a 350,000tpa ammonium nitrate plant in the Pilbara. It started the environmental review process last year via a subsidiary, Dampier Nitrogen.

Incitec Pivot’s wholly owned Dyno Nobel has also recently committed to a $40 million plant at Port Hedland to produce ammonium nitrate emulsion, the next step in the bulk explosives manufacturing process. The Queensland-based company currently produces emulsion at Kalgoorlie, which it transports up to the Pilbara.

In an example of the incestuous nature of this industry, Wesfarmers supplies Dyno Nobel with ammonium nitrate from its Kwinana plant, which in turn is a customer of Yara, which sources ammonia from Burrup Fertilisers.

Yara has an off-take agreement from Burrup Fertilisers.

Despite the difficulties at the ammonia joint venture, Yara announced in March it was proceeding with a $700 million ammonium nitrate plant long planned as an equal joint venture with Burrup Fertilisers. That announcement may also have been an attempt to head off rival moves, such as the recent announcement by Wesfarmers.

Since then, the war of words between Yara and the embattled Oswals has escalated, suggesting there are significant impediments to the ammonium nitrate project, including the potential for legal action.

The balance in that battle shifted somewhat last week with revelations that Yara has become mired in a corruption scandal and is under investigation by the Norwegian government, a 35 per cent owner.