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.