Fletcher may sue Oz over pull out

The Australian insulation stimulus package ended suddenly in February last year after a series of scandals over insulation standards. Photo / Supplied

A massive Pink Batts stockpile, as long as a football field and as high as a four storey-building, is at a mothballed Fletcher Building plant in Sydney, raising the possibility of litigation against the Australian Government over the axing of its insulation scheme.

Philip King, Fletcher Building investor relations general manager, yesterday refused to say if his company was seeking compensation after reports in Australia that manufacturers CSR, Fletcher and Knauf planned to sue the federal Government for axing the household insulation programme last year - and leaving them with more than A$50 million ($64 million) of material.

"I can't talk about legal action except to say we have been considering our options," King said.

But he did confirm the 12m-high stockpile and said new options for the once-valuable materials were being considered.

Fletcher Building shares closed down 11c at $8.24 yesterday.

The Australian Government's sudden cancellation of the scheme cost Fletcher Building $18 million, a write-off taken into the June 3, 2010, accounts, which included redundancies and loss of sales.

Fletcher Insulation has now mothballed its Rooty Hill insulation factory in western Sydney, laying off 120 staff. Its glass wool insulation plant at Dandenong in Victoria has been reduced to operating at 60 per cent capacity after the sudden state about-turn on what had been a generous insulation scheme, riddled with problems after house fires from poor standards and widespread ripoffs by installers.

Manufacturers have been suffering every since.

King yesterday acknowledged the seriousness of the situation for New Zealand's largest listed company.

"We have several thousand tonnes of Pink Batts at Rooty Hill," he said, adding that the ceiling-product pile could insulate tens of thousands of houses.

Some of the wrapped stockpile was stored inside, but other Pink Batts were piled up outside, simply because the big factory did not have enough room to take the overflow.

The Pink Batts have been at the factory for months.

"We've been gradually whittling the stockpile down but that has taken longer than we would have anticipated. The reality is the market suffered significant disruption because the agreement was terminated and a number of others got left high and dry and everyone is trying to sell excess but consumers are disenchanted, having got the product for free previously under the government scheme.

"So there's the classic oversupply of stock and lack of consumer confidence."

Some analysts in New Zealand are viewing the Australian situation with concern, one worrying about so much stock being out in the weather where it is deteriorating.

The Batts are made mainly of recycled glass but King said Fletcher Insulation could use at least some of the product in another form.

"We're trying to sell it down but we may use some of it in blown product," he said, referring to a process where the Batts are broken down from bales made specifically to fit between standard rafter dimensions, chomped to bits, then injected into houses.

In early 2009, Fletcher Building was tipped to get a big boost from Australian Prime Minister Kevin Rudd's package to give insulation payments to homeowners and landlords as part of an A$3.3 billion package.

Fletcher dominates Australia's insulation market with 60 per cent of production capacity. Rival CSR has 40 per cent.

The stimulus package started on July 1, 2009, and was due to run for 30 months but it suddenly ended in February 2010. It was abandoned when scandals arose from a number of problems and CSR wrote off A$23 million at its Bradford Insulation subsidiary.

Jonathan Ling, Fletcher Building chief executive, criticised the sudden end in February last year, saying Fletcher had expanded on both sides of the Tasman.