Australia-based Orica Ltd. forecasts a 10 percent annual increase in demand for ammonium nitrate, a key ingredient of explosives, as mining companies aggressively expand output to meet rising demand for metals.

The company said demand for raw materials to make explosives in Indonesia, Southeast Asia's largest economy, would grow twice as fast as the global average.

"Ammonium nitrate consumption in Indonesia would be presently between 350,000 and 400,000 tons per annum," Orica chief executive officer Graeme Liebelt said Wednesday.

Orica, the world's largest producer of explosives, is currently joint venturing with local firm Armindo Group in building a US$550 million plant in Bontang, East Kalimantan, to produce 300,000 tons of ammonium nitrate annually.

"We think demand will grow by about 10 percent per annum. So, by the time we finish building the plant, all of its production output will be required for the Indonesian market, and we'll probably still be importing some products too."

Demand for ammonium nitrate has been increasing since mining companies began pushing for more output to cope with the rising prices of metals on the global market.

"What we're doing here is really driven by the plans of coal and base metal customers," Liebelt said.

Built on a 10-hectare plot, the plant has already cost the joint venture company, PT Kaltim Nitrate Indonesia (KNI), some $60 million for land, equipment, engineering and administration, he said.

With rival company PT Multi Nitrotama Kimia being Indonesia's only ammonium nitrate producer (producing around 36,000 tons annually), KNI is expecting to dominate the domestic market early 2011 when it is scheduled to open its new plant.

Liebelt said KNI's product would not be exported, but serve as a substitute for ammonium nitrate imports, which Orica has supplied to Indonesian mining companies for more than three decades.

"Coal gets exported, copper and gold get exported, but we won't be exporting ammonium nitrate," he said.

Besides Indonesia, Orica is also supplying ammonium nitrate to other countries including Malaysia, Thailand, Vietnam, the Philippines, China, India, Australia and the European Union.

In response to high competitiveness in the global market, he said the company would also consider investing in Latin America and Australia.

"It's a competitive market globally. There's a little bit of a shortage of ammonium nitrate coming up," Liebelt said.

"If you look a few years ahead, you can see demand will continue to grow and we need new plants to supply that extra demand. We're also going to have a look at investment in Latin America and Australia."

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