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Resources firms dine out despite carbon tax scare campaign

Australian resources companies have enjoyed a healthy six months since the introduction of the Gillard government’s feared carbon tax. So much for the predicted business wipeout.

Australia’s leading resources stocks have spiked since the Gillard government’s introduction of the carbon tax, despite doomsayers from the conservative side of politics predicting share market carnage in the wake of the impost.

Official figures show that in the six months from the imposition of the tax on July 1 to the end of December, the total return of the S&P/ASX 300 Resources Index was 10.86% — or an annualised 22.57% — as continued global demand for raw materials remained strong.

The best performing individual members of the index over that time were Bluescope Steel (+91%), Mirabella Nickel (+84%), Papillon Resources (+77%), Linc Energy (+70%), Northern Star Resources (+60%) and Beach Energy (+57%).

Global miner BHP Billiton soared 21% while rival Rio Tinto saw a 19% rise. Alcoa partner Alumina had its shares increase by 49%. The London-listed shares of the Australia’s third major player, Xstrata, jumped from 799 pence on June 29 to 1059 pence on New Year’s Eve.

Fortescue Metals declined 4% due to debt issues, restructuring costs and slumping iron ore prices, which have since recovered to 18 month highs. The firm is expected to lift its production capacity to 155 million tonnes by the end of the year.

Labor’s $23-a-tonne carbon tax was introduced on July 1, 2012 and targets the country’s top 500 polluters, with the aim of encouraging firms to cut carbon emissions and invest in green technology.

Prior to its introduction, conservatives foreshadowed the imminent derailing of Australia’s once-in-a-lifetime resources boom. In March, opposition leader Tony Abbott said the tax would “swing like a wrecking ball” through the economy. On June 4, Abbott forecasted a long, slow strangulation of industry by way of a “python squeeze” rather than an immediate “cobra strike”. By August, Abbott was claiming long-term modelling would eventually bear out his thesis.

On the coal industry in particular, Abbott said in June the carbon tax “spells the annihilation of the domestic coal industry … the whole point of a carbon tax is to eliminate the use of coal and that spells death for the coal industry”.

Regarding steel, Abbott said at a doorstop in June: “The steel industry has no future in this country under the carbon tax.” In March, he predicted the tax would lead to an economy “where industries that use lots of electricity like steel and aluminium scarcely exist in Australia”.

And, in perhaps his most famous intervention, in April 2011 the Warringah MP thundered that Whyalla, Port Pirie, Gladstone, the Hunter Valley, the Illawarra, Kwinana, the La Trobe Valley and Portland “will be wiped off the map by Julia Gillard’s carbon tax”.

Many of the firms themselves have been reluctant to cite the carbon tax as a progenitor of doom.

In August, Abbott stumbled when grilled by 7:30 host Leigh Sales over BHP’s decision to dump its Olympic Dam project. The company blamed lower commodity prices and higher costs for the decision but didn’t name-check the tax.

Bluescope, despite proceeding yesterday with its job-slashing consolidation plans, has been a top performing stock in the ASX 100 from July 2012 to the start of the year. It has struggled to compete in recent years with the rising price of iron ore, the high Australian dollar and cheap Asian imports but has recently been buoyed by anti-dumping initiatives and soaring steel prices.

When Bluescope announced its initial tranche of job losses in 2011, former Liberal Treasurer Peter Costello claimed the introduction of the carbon tax would lead to Asian exporters being 5% better off because the government’s steel compensation package didn’t cover the tax’s full impost.

Yesterday, the firm laid off 170 workers at its Western Port Mill in Victoria but said lost production would be recovered elsewhere. The stock was off 14 cents at the open this morning.

Other carbon-intensive companies have seen an increase in their fortunes as a direct result of compensation measures associated with the carbon price. In September, private research house Frontier Economics predicted brown coal generators were at least $400 million (and probably about $1 billion) better off than if the carbon tax had never been introduced.

And other government taxes have also failed to adversely affect day-to-day operations. Yesterday, The Australian reported that Rio Tinto, BHP Billiton and Xstrata would again pay no minerals resource rent tax in the second quarter after they failed to contribute any MRRT to government coffers in the three months to September.

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  • 1
    Roger Clifton
    Posted Tuesday, 15 January 2013 at 1:33 pm | Permalink

    So Tony Abbott predicts that a carbon tax would wipe out industries that use lots of electricity?

    That does assume that electricity comes from carbon-based fuels. However, he does have a point, if Australia continues to prohibit nuclear power. You can’t smelt aluminium etc with unreliable wind power.

    The Coalition would win votes if they promised to repeal that legislation, and left it up to the heavy electricity-users to argue the case for non-carbon baseload electricity.

  • 2
    Burt Chris
    Posted Tuesday, 15 January 2013 at 1:38 pm | Permalink

    Andrew’s article seems to have let his very obvious personal politics get in the way of any meaningful analysis. Holding up Bluescope Steel as some sort of stock market darling because it is up 91% to $3.50 or so ignores the fact that it used to $45.00 per share. The drop can’t all be traced back to the mining tax which I think is his point but percentage gains mean nothing in a comparison of the sort he is making. Similarly the BHP proce used to $50.00 - the recovery to $38.00 merely means some factors have moved in their favour (like the recovering US economy and China holding up better than feared). Andrew has not proved his point that the mining tax impacted share prices positively or negatively.

  • 3
    Posted Tuesday, 15 January 2013 at 2:02 pm | Permalink

    The lack of a nuclear power industry in Australia is due less to government prohibition than to the lack of the massive government subsidies that would be needed to make it viable.

  • 4
    Posted Tuesday, 15 January 2013 at 3:31 pm | Permalink

    Roger you call wind power “unreliable” yet there are several new technologies (including this one by Apple Inc - see http://appleinsider.com/articles/12/12/27/apples-wind-turbine-technology-uses-heat-not-kinetic-energy-to-generate-electricity ) that offer ways to generate steady streams of “base load” power from wind. Nuclear won’t ever be viable here because no-one is willing to risk the huge amounts of money needed to develop an Australian nuclear industry. As Gavin points out such an industry would require a massive investment by the Government and not even a coalition government is ready to hitch themselves to that white-elephant.

    Uranium is not a renewable resource; sunlight and wind are. The money it would cost to build a nuclear industry here would be better spent on developing technologies that better harness renewable energy and better transmit that energy to where it’s needed.

  • 5
    John Bennetts
    Posted Tuesday, 15 January 2013 at 3:58 pm | Permalink

    Gavin has provided not a shred of evidence to support his highly misleading affirmation.

    Those interested in factual content can google LCOE - Levellised Cost Of Electricity and perhaps come away both surprised and better informed as to comparison costs of electricity from all conceivable sources, calculated using a methodology which captures all costs throughout the lifetime of each technology.

  • 6
    Posted Tuesday, 15 January 2013 at 4:14 pm | Permalink

    True, I should have given the references, both to Crikey articles by Bernard Keane: ‘Marn’s minimalist white paper goes the market way’ published on 9 November 2012 and ‘Nuclear power costs are going up and up, Minister, not down’, 24 October 2012.

  • 7
    Roger Clifton
    Posted Tuesday, 15 January 2013 at 4:30 pm | Permalink

    @ Dave Sag

    We don’t have to develop an entire nuclear industry here, or invest in a prototype reactor, we only have to let utilities buy one.

    All a Coalition (or any environmentally honest) government has to do is open the gate by rescinding the prohibition. Company engineers can then do their arithmetic (LCOE). That’s when a carbon price does its work, persuading energy users to switch to the best non-carbon power source.

    Not renewable”? Nuclear is sustainable. Carbon fuels are not.

  • 8
    dazza
    Posted Tuesday, 15 January 2013 at 6:13 pm | Permalink

    When I heard Abbott frothing at the mouth about Whyalla, La Trobe valley etc with one of his famous quotes that these industries ….“will be wiped off the map by Julia Gillard’s carbon tax”.
    I always think the opposite to Abbott and thanks to him, I didn’t sell any shares and I’m doin fine thank you very much.

  • 9
    Steve777
    Posted Tuesday, 15 January 2013 at 10:36 pm | Permalink

    In August, Abbott stumbled when grilled by 7:30 host Leigh Sales over BHP’s decision to dump its Olympic Dam project.”

    I would replace “stumbled” with “lied”, although it is entirely possible that Abbott was genuinely ignorant and didn’t know what he was talking about. Of course in either case he expected to get away with it as our lazy or biased media normally allow him to do. It must be great to be a right winger and not be bothered by the need for facts, evidence, logic or consistency.

  • 10
    David Hand
    Posted Tuesday, 15 January 2013 at 11:44 pm | Permalink

    It is never smart to attach a causal relationship to stock price movements and anyone taking Andrew Crook’s analysis as a guide is very brave.

    Resources share prices are driven mostly by commodity prices and the second half of last year saw a recovery of sorts in coal and iron ore.

    I know the leftie luvvies have had a lot of fun with Tony Abbott’s prediction that Whyalla would be “wiped off the map” along with those peurile jokes on 1 July that it was still there. To any objective view, the issue is about the survival of the steel industry in that location and its survival depends on it being given every chance to compete in global markets. The carbon tax is a burden on this trade-exposed industry.

    Bluescope is continuing to shed jobs. The steel industry is doing it tough in Australia in 2013. Meanwhile, Chinese and Indian steel industries continue to pump enough untaxed carbon into the atmosphere to make any IPCC “window of opportunity” a joke.

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