Wesfarmers says Middle East conflict pushed up fertilizer costs as WesCEF earnings rose 18.5%

Wesfarmers’ Chemicals, Energy & Fertilisers (WesCEF) division increased earnings by 18.5% to A$473 million (about $309 million) in fiscal 2026, while revenue rose 5.9% to A$3.14 billion ($2.05 billion). The improvement was driven largely by higher fertilizer and spodumene concentrate prices and a sharp recovery in lithium earnings, although ammonia and energy earnings declined.

The fertilizer business faced a markedly more difficult second half after the Middle East conflict disrupted supply chains and increased import costs. Wesfarmers said CSBP, its Western Australian fertilizer business, responded by increasing local manufacturing, sourcing products from alternative regions and building additional inventory to protect farmers from supply shortages. The company said fertilizer earnings in fiscal 2027 will remain exposed to potential supply disruptions, market prices and seasonal conditions.

Fertilizer supply disruption raises costs

WesCEF’s fertilizer performance weakened in the second half of fiscal 2026 as the Middle East conflict affected international supply chains. Strong earnings in the first half were offset by higher import costs and supply disruptions later in the year.

The impact was also visible in Wesfarmers’ working capital. The group increased fertilizer inventories at elevated prices to maintain product availability during the disruption. WesCEF accounted for A$163 million ($106 million) of the group’s A$445 million ($290 million) working-capital cash outflow during the year, with the company describing the additional inventories as a temporary response to volatile market conditions.

The company said CSBP worked with industry and government to support additional fertilizer supply to Western Australian farmers. It also increased inventory levels and used alternative sourcing channels to reduce the risk of shortages.

The disruption came as ammonia prices increased significantly. Wesfarmers said the conflict contributed to higher global ammonia prices, which should support earnings from manufactured volumes. However, the sharp increase in index prices during the fourth quarter of fiscal 2026 created an unfavorable timing effect under WesCEF’s sales contracts, shifting part of the earnings impact into the first half of fiscal 2027.

WesCEF earnings benefit from higher fertilizer and lithium prices

WesCEF generated A$3.14 billion ($2.05 billion) in revenue during fiscal 2026, compared with A$2.96 billion ($1.94 billion) a year earlier. EBITDA rose 16.4% to A$654 million ($427 million), while earnings before tax increased to A$473 million ($309 million).

Production of ammonia increased 2.3% to 269,000 metric tons, while ammonium nitrate production rose 1.5% to 863,000 metric tons. Sodium cyanide production declined 5.6% to 84,000 metric tons because of an extended plant shutdown associated with an expansion project.

Ammonia earnings nevertheless declined because higher index prices and the timing mechanism in WesCEF’s sales contracts created an unfavorable impact on imported volumes. The company expects this timing effect to reverse in fiscal 2027, with ammonia earnings benefiting from the lag mechanism, although a planned major shutdown is expected to reduce production.

The sodium cyanide expansion is also expected to support earnings. The first plant reached its targeted production rate in May, while the second stage of the expansion is scheduled for completion in the first half of fiscal 2027. The expansion is expected to increase sodium cyanide capacity by about 35,000 metric tons per year to approximately 130,000 metric tons per year.

Lithium becomes a bigger contributor

Lithium was a significant positive factor in WesCEF’s results. The division reported A$40 million ($26 million) in lithium earnings in fiscal 2026, compared with a A$59 million ($39 million) loss a year earlier.

WesCEF, which owns 50% of Covalent Lithium, said the improvement reflected higher spodumene concentrate prices and stronger operating performance at the Mt Holland mine and concentrator. Its share of spodumene production reached 209,000 metric tons, above both guidance and the 190,000-metric-ton nameplate capacity. The company sold 151,000 metric tons, with the remainder used as refinery feedstock or held in inventory.

The Kwinana lithium hydroxide refinery also produced and sold its first product during fiscal 2026. However, intermittent odor issues affected the ramp-up and qualification process, with mitigation measures beginning late in the financial year.

In July, Wesfarmers and its joint venture partner Sociedad Química y Minera de Chile approved an expansion of the Mt Holland mine and concentrator. The project is expected to double nameplate spodumene concentrate capacity to about 760,000 metric tons per year, with WesCEF’s share increasing to approximately 380,000 metric tons. First product from the expansion is targeted for calendar 2030.

Wesfarmers estimates its share of the expansion’s capital expenditure at between A$645 million and A$715 million ($421 million-$466 million), excluding capitalized interest.

FY27 fertilizer outlook remains tied to supply risks

Wesfarmers expects fertilizer earnings in fiscal 2027 to remain dependent on the possibility of further supply disruptions, market pricing and seasonal conditions. WesCEF plans to continue strengthening supply-chain resilience and manufacturing capabilities ahead of the new agricultural season.

Ammonia earnings are expected to receive a temporary boost from the contract timing mechanism, while ammonium nitrate earnings should benefit from higher production. The company also expects the completion of its sodium cyanide expansion to contribute to earnings growth.

For the broader Wesfarmers group, higher labor, energy and supply-chain costs are expected to persist in fiscal 2027. The company plans to offset some of the pressure through productivity programs, digitization and increased use of artificial intelligence.

Wesfarmers expects net capital expenditure of A$1.3 billion-A$1.5 billion ($848 million-$978 million) in fiscal 2027, including about A$200 million ($130 million) for the Mt Holland expansion. WesCEF accounted for A$365 million ($238 million) of gross capital expenditure in fiscal 2026, primarily related to the Covalent Lithium project and sodium cyanide expansion.

Group earnings remain resilient

Across the group, Wesfarmers reported fiscal 2026 revenue of A$47.27 billion ($30.8 billion), up 3.4%, while net profit after tax excluding significant items increased 8.3% to A$2.87 billion ($1.87 billion). Free cash flow rose 15.8% to A$3.99 billion ($2.60 billion).

The results leave Wesfarmers entering fiscal 2027 with higher debt and increased investment requirements but a stated focus on maintaining balance-sheet flexibility. Net financial debt reached A$5.3 billion ($3.45 billion) at June 30, 2026, compared with A$4.2 billion ($2.74 billion) a year earlier.

For the fertilizer market, however, the most immediate issue is the continuing vulnerability of international supply chains. Wesfarmers’ decision to hold additional inventory and diversify sourcing during the Middle East disruption indicates that Australian fertilizer suppliers are continuing to prioritize physical availability alongside price management as they prepare for the next agricultural season.

Sources: Wesfarmers, 2026 Full-year Results; Wesfarmers, 2026 Full-year Results Presentation