MELBOURNE, Aug 7 (Reuters) - Australia's Orica Ltd ORI.AX , the world's largest supplier of mine explosives, warned on Friday it expected to take an impairment charge of up to A$1.65 billion ($1.2 billion) this year, underlining the tough outlook facing the mining sector.
"Market conditions remain extremely challenging and in this environment there is an increased need to further reduce costs and increase efficiency," said Alberto Calderon, who became chief executive in May after a career at BHP Billiton (LONDON:BLT).
The firm expects 2015 net profit after tax to be 10-15 percent lower than the broker average forecast of about A$490 million.
Orica said it expected to recognise a non-cash impairment charge in the range of A$1.35 billion to A$1.65 billion after tax in its 2015 financial results.
Shares in Orica fell to a low of A$15.55 on Friday, the weakest in more than six years, after the company also said it was reviewing a planned share buy back announced in March.
In May, Calderon had struck a more optimistic note, flagging that 2015 was likely to mark the bottom for the mining industry and its own earnings. ID:nL3N0Y305E
Since then, China's economic outlook has worsened, with factory activity contracting the most in two years in July, while the price of many metals have slumped to six year lows.
Calderon blamed an oversupply in the ammonium nitrate market and also said that Orica was assessing strategic options for its ammonium nitrate manufacturing unit in Indonesia.
The firm announced output and job cuts in July at its operations in the Australian state of Queensland.
Orica's impairment warning comes after Australian engineering service provider Downer EDI Ltd DOW.AX issued a profit downgrade earlier this week due to an "extremely difficult market". ID:nL3N0Y305E
Calderon said that while the boom in commodity prices had ended, there was still room for growth in sales volumes to China and India in particular.
The executive said that the business could improve in the next two years as miners require more explosives.
"I think this is the most difficult part of the cycle... and I'm quite optimistic by 2017," he told a news briefing in Melbourne.
($1 = 1.3589 Australian dollars)