14/09/2011 - 10:37

Coal hard facts make tax plan a hard-sell

14/09/2011 - 10:37

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Growing worldwide demand for Australia’s coal makes selling the carbon tax a tricky exercise.

CARBON is political enemy number one in Canberra, but even members of parliament debating the proposed carbon tax must see the irony in the latest ‘carbon’ sales numbers, which keep Australia’s finances in the black and leave the country exposed to a charge of hypocrisy.

The carbon in question is coal, a fossil fuel many people hate but without which Australia would be lurching towards bankruptcy.

Just how important coal is to the Australian economy can be found in the latest forecasts for mineral exports and prices.

While the price of every other commodity is tipped to decline over the next few years, coal will rise, potentially reclaiming its position as the country’s most valuable export.

By 2013 the value of Australia’s coal exports should be around $74 billion a year, if forecasts from the investment bank Citi Global Markets are correct. Iron ore, the current leader, will be worth around $69 billion a year.

When, not if, coal slips past iron ore as the major export, it would be fair for Australia’s critics to accuse the country of behaving like a drug pusher, selling a product it officially believes to be bad for public health while banking the profits from selling it.

That is an extreme view, but the case can be argued that when the carbon tax becomes law Australia will have declared a political position that it is opposed to the use of coal, while at the same time actively encouraging its use by customers.

Even if Citi’s forecasts are nothing more than standard investment bank best guesses with a large error factor, the question will be asked that, if Australia hates carbon so much, why is it expanding exports so rapidly?

There is no answer to the charge of hypocrisy, but there is an explanation for booming coal sales, and strong price outlook – the world wants our coal and is prepared to pay for it.

According to Citi, Australia’s exports of thermal coal, the sort used to generate electricity, will rise from 152.9 million tonnes this year to 177.5mt next year, and then up to 186.6mt in 2013.

Exports of metallurgical coal, the sort used to make steel, will rise from 139.7mt this year to 180.4mt in 2013.

Over that time, the price of thermal coal is expected to rise from an average of $US122 a tonne to $US146/t. The price of metallurgical coal is expected to fall from $US289/t to $US248/t.

That curious difference in forecast prices is an environmentalist’s worst nightmare because it is saying that demand for steel-making coal will slip as the world economy wobbles towards recovery, but demand for electricity will continue rising strongly.

The price trend is also suggesting that coal remains the world’s preferred fuel for power generation, and that Australia will be the world’s number two supplier of thermal coal for years to come, behind Indonesia in top spot, but ahead of Russia, South Africa and Colombia.

Factors driving coal exports, and the coal price, include the industrialisation of China and India, both of which are boosting coal imports, and the return of Germany and Japan as major growth markets for coal because they have shut nuclear power plants.

Worldwide, and these really are numbers to send a shudder through the crowd baying for a carbon tax in Australia, coal imports by the major burners of the fuel will rise from 714mt this year to 823mt by 2013, and then upward to 930mt in 2016.

In other words, the world is prepared to pay for our coal and really doesn’t care whether Australia has a carbon tax, or not – but would care very deeply if we ever took the next step in the anti-coal campaign and threatened to limit exports.

Australia might be a reluctant ‘coal pusher’ but it really has no choice, because limiting exports would invite retaliatory trade sanctions.

Which leaves Australia in the difficult position of being forced to accept $74 billion a year, and growing, from 2013.

Have, have not

IF managing coal is a tricky business for Australia then consider the even trickier business of managing Europe, where the latest survival plan might stimulate debate about the possibility of a similar strategy for Australia.

According to reports from Germany there is a ‘divide and rescue’ proposal being steamed up in Berlin, with Europe being split into rich and poor halves.

German chancellor Angela Merkel is said to be considering the creation of an exclusive euro-zone club of the 17 countries that control the European currency (the euro), and which will move even closer together on budget and social policies – separate from the other 10 members of the European Union.

Reports so far, such as that in Der Spiegel magazine, focus on the plan creating a sort of ‘core Europe’ of countries which share common values.

In fact, the plan is more one of adjusting to a two-speed Europe, with one half growing fast and the other not.

No-one, apart from German politicians, appear to be embracing the idea but it will be interesting to see how a region of the world deals with the problem of unbalanced growth, a situation that will become more apparent in Australia as the resources boom rumbles on and the country divides into states that have, and those that have not.

Wine whine

TOUGH times for Australia’s wine industry look like becoming even tougher over the next few years, not because of the high value of the dollar and the problems it causes, but more because of trends in retailing.

Coles and Woolworths, which dominate virtually every aspect of the retail trade in Australia, are vigorously applying the big box shopping theory to liquor sales, an approach that calls for monster outlets (like a Bunnings warehouse) for booze.

With an estimated 58 per cent share of national wine sales already under their collective, Coles and Woolworths are on track to command around 65 per cent by 2015 as they open more big box stores.

This is a horrible outlook for wine makers because the big retailers will demand, and get, the lowest price for what goes on their shelves, even if it means importing more overseas wine.

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“A little sincerity is a dangerous thing, and a great deal of it is absolutely fatal.”

Oscar Wilde


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