Speaking at the recent Australian Mines and Metals Association conference in Perth, Orica managing director and CEO Ian Smith said people often forgot the place the US had once held in the global economy.
 
“People forget that prior to China taking over, the US used to drive a lot of the demand,” he said.
 
“The US has been rebuilding itself quite formidably. It’s been rebuilding on the back of really cheap gas and cheaper labour.
 
“That economy is coming back.”
 
A key example of this is the relocation of some chemical plants from Europe to the US.
 
They have been moved there because the feedstock – natural gas – is much cheaper in the US these days.
 
However, the once high price US labour market has also come back quite a lot in price terms.
 
How long the US remains price competitive in labour remains to be seen. However, at the moment it is certainly competitive. It is also more productive.
 
That productivity theme was a key tenet that Smith and co-speaker Transfield Services managing director and CEO Graeme Hunt held to.
 
Smith’s business these days is heavily reliant on energy so he is particularly sensitive to what is happening in the east coast gas space.
 
However, prior to taking on his Orica role he turned Newcrest into a major Australian gold miner and is well versed with the labour issues affecting the extractive industries.
 
He said businesses just needed to take on the mindset that they would be better tomorrow than they were today.
 
“If we want to drive a more productive workforce we have to get everybody in a business or in an environment on board,” Smith said.
 
“You have to make sure that you don’t allow things to creep in that put you in a worse position.
 
“It’s up to all of us to drive a more productive and efficient environment for everyone.”
 
That means continually looking at the operations and ways to make them better.
 
Sometimes it means making small adjustments and other times much larger ones.
 
Smith said Orica was in the process of negotiating an enterprise bargaining agreement at Kooragang Island.
 
It turns out the ammonium nitrate plant there has been split into two separate operations – one for ammonia and one for nitrates.
 
The operations have had two separate rosters – the ammonia plant starts at 9am and the nitrates plant at 10am.
 
Maintenance scheduling difficulties are the least of the problems there.
 
Smith said as part of the EBA negotiation the plant would be running just one roster, which would bring a big benefit.
 
Both Smith and Hunt agreed the recent mining boom had led to the creation of poor practices.
 
“When you are in a boom the whole market tells you to produce more tonnes,” Smith said.
 
“It doesn’t matter how you get that extra tonne. Because of the pricing every tonne gets you more profit.
 
“All of that pushes up the costs at a disproportionately higher rate.
 
“In the coal industry at the moment the average cost of production is about $75 per tonne. The US price is about $75/t.”
 
Therefore, costs per tonne need to come down.
 
One of the ways to do that is to innovate.
 
“Orica is in the business of innovation,” Smith said.
 
“We’re trying to convince people to use chemical energy in place of mechanical energy.”
 
Transfield Services has started using technology to help its own mobile technicians get more time on the tools too.
 
“In one of our water contracts we’re using some technology that is similar to a taxi dispatch system so the guys can go straight from home to their first job and the system can keep them topped up with work,” Hunt said.
 
“This has decreased travel time by 30%.
 
“The guys like it. There is an element of big brother about it but people don’t like to be bored.”
 
“This system can generate work orders on the fly. The workers can get photos back to the office. It helps ensure that work orders and purchase orders match.”
 
So what of the workers that put in the effort to boost productivity? There is a concern that they will suffer because they will have done all the work or made do with fewer resources to get a better outcome for their employers.
 
Smith said he would like to see legislation that tied productivity to wage increases.
 
“It should be the basis for how people get wage increases in Australia,” he said.
 
“If people are truly contributing to the company do you not reward them?
 
“All discussions should be based around productivity.”
 
Another way to boost productivity is to get more out of what is there.
 
“We’re trying to work out how to sweat our assets harder,” Hunt said.
 
“There is still a lot of value to be created out there. It’s all about how we can unlock that capacity.
 
“In many ways that’s about value and not just costs.”
 
Both Smith and Hunt have ridden the wave of change that shaped the resources industry.
 
“About 10 years ago BHP was shipping about 50 million tonnes a year,” Hunt said.
 
“Back then China was page five of the strategic plan.”
 
Of course these days China is front and centre.
 
Hunt was also president of three key BHP Billiton metals portfolios – iron ore, aluminium and uranium.
 
He said despite the recent fall in the iron ore price, it should be possible for miners to make money.
 
“Iron ore was $19 a tonne back in 2000 and we were making money.”
 
Albeit not quite as much money as was being made now, Hunt admitted.
 
Also, the major iron ore miners did not have the same level of investment to monetise.
 
Hunt said it was hard for miners to plan.
 
“It is hard to plan when the major user of the commodity is also a producer of it,” he said.
 
“We’re fortunate that the quality of our resources is much higher than in most of the places we’re selling to.”
 
That is not to say that the Chinese need for resources is going to come to a dramatic end.
 
Smith said he attended the Bao Forum a month ago.
 
“The Chinese still have 25% of their rural population to move to the cities,” he said.
 
They are going to need a lot more iron ore and coking coal.
 
Hunt said a key part of it was important to understand customers’ value drivers and that cutting costs was not always the answer.
 
He pointed to a recent example in the coal sector. Transfield was supplying maintenance services to a customer. The customer came to Transfield and said it wanted the cost of those services cut by several per cent.
 
That sized cut was greater than Transfield’s margin on the work.
 
“I said can we help you debottleneck your business instead,” Hunt said.
 
“Increasing productivity and increasing tool time is a big issue we’ve found.”