takeover or gsa, page-10

Another article about the importance of CSG in one of the papers:

Boral chief executive Mike Kane said coal seam gas was critical to the future of Australian manufacturing, and rising energy costs threaten to kill the industry.

The American executive has only been running Australia's largest supplier of construction materials and building products for about 18 months, but he has already slashed 1000 jobs and cut $105 million from Boral's cost base.

Mr Kane still has costs firmly in focus, telling Financial Review Sunday on Channel Nine that spiralling energy costs are seriously damaging manufacturers.

"Coal seam gas is part of the future recovery for Australian manufacturing," he told the program.

Advertisement

"If it's not exploited properly, I think Australian manufacturing has a use-by date attached to it because the inflationary pressures in energy will kill domestic manufacturing through time."

Gas and electricity cost Boral about $100 million a year. The company manufactures concrete, bricks, plasterboard, and other building and construction materials. The building materials group's recently signed contracts in NSW and Victoria will mean Boral's cost of gas rises about 20 per cent from this year.

In December, fertiliser and explosives maker Incitec said its new gas contract for its Phosphate Hill plant in Queensland would add $50 million to manufacturing costs.

Exxon Australia executive Paul Foster said this week that gas was only going to get more expensive.

"More [gas] exploration is needed and I think there are too many inflationary pressures facing domestic manufacturers to withstand that pressure if that [exploration] doesn't happen," Mr Kane said.

Because of import parity pricing, it is difficult for Boral and its competitors to pass cost increases on to customers. But Mr Kane is testing the waters.

At its half-year result in February, when Boral reported a 73 per cent jump in underlying half-year profit to $90.4 million, the company signalled its intent to raise concrete prices by 6 per cent next month.

Boral shares have surged 18.5 per cent over the year to date to $5.65 as residential housing construction rebounds.

UBS is forecasting 180,000 housing starts this year compared with 151,000 in 2012.

"The Australian economy is showing signs of recovery but it is still early days. Not all of the states are hitting it at the same rate so I would argue that Queensland, Victoria and South Australia still have a while to come, so I am not ready to call a boom yet," Mr Kane said