November 16, 2009 / 2:55 AM / in 8 years

UPDATE 2-Australia's Incitec Pivot sees tough 2010

* Year net loss of A$179.9 mln after Dyno writedown

* Savings from Dyno pushed out to 2011

* Shuts two North American ammonium nitrate plants

* Shares jump 7 pct (Adds CEO, analyst comments, H2 underlying profit)

By Sonali Paul

MELBOURNE, Nov 16 (Reuters) - Incitec Pivot Ltd IPL.AX, Australia’s top fertiliser maker, expects a tough year ahead, with some gains in fertiliser demand and prices in Australia but a flat outlook for explosives in its key U.S. market.

It reported a year net loss on Monday, hit by a writedown on the Dyno Nobel explosives business it bought before the market crashed. Underlying profit in the second half slid 63 percent, as expected, as fertiliser and explosives demand and prices slumped.

Investors looked past the result and the group’s reduced target for cost savings in 2010, and pushed its shares up nearly 7 percent, pinning their faith on a recovery after March.

“You can’t expect these very, very difficult prices to continue. Some normality must return to the market eventually,” said Gavin Duffy, an analyst at brokerage E.L.& C Baillieu.

The world’s no.2 maker of explosives for mines said it expects demand for explosives to remain weak in the United States as construction of housing estates, which need rock from quarries, had yet to pick up, while demand from coal mines would depend on power stations reducing their coal stocks.

“In terms of the U.S., we’re seeing the market very flat,” Managing Director James Fazzino told reporters.

He said fertiliser demand and prices should start improving around February when farmers in the United States, Latin America and India begin buying again, after a year in which prices for group’s key fertiliser, diammonium phosphate, dropped 60 percent.

However, a recovery in China’s fertiliser production, running well below normal now, could dampen gains, he warned.

Net profit after tax, excluding one-off charges, fell to A$178 million ($166 million) for the six months to September, from A$482 million a year earlier. The result was in line with forecasts of A$170 million, according to Thomson Reuters I/B/E/S.

Incitec Pivot reported a bottom-line loss of A$179.9 million, hit by a A$490 million writedown on the Dyno explosives business, or nearly one-fifth of the goodwill on the acquisition made in the 2008 financial year partly reflecting the U.S. downturn.

“While they paid too much for it, it’s still a very useful business and has a dominant role in the North American market,” said E.L.&C Baillieu’s Duffy.

The group is on track to meet its goal of $204 million in cost savings by 2012 from its Dyno arm, but lowered its target for 2010 by nearly a third to $60 million because some savings could not be achieved with plants running well below capacity.

It also said it would shut two ammonium nitrate plants in the United States and Canada because they were not making any money.

Incitec Pivot’s shares last traded up 6.5 percent at A$2.79 after touching a high of A$2.80, outpacing a 0.8 percent rise in the broader market. But in the year to date its shares had risen only about one-fifth as much as the broader market. (Editing by Valerie Lee)

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