Hogsback discovers a week is a long time in politics and coal

IF the Australian Greens, which appear to hold the whip hand in the country’s government, was celebrating a win against the coal industry on Monday then Hogsback reckons it was fuming by Wednesday as coal fought back to emerge a clear winner.

Tim Treadgold

The Monday victory was the inclusion of a clause in the proposed new carbon tax which would forever treat coal differently to other “trade-exposed” export industries as part of an attack designed to stop the development of new coal mines.

By Wednesday a wake-up call came from BHP Billiton, which said it was full-steam ahead for coal – a position which will have come as some relief to Australia’s steel workers, who are losing their jobs and face a bleak future.

On balance, the week’s events were a rare example of what happens when the murky world of politics meets the hard-nosed world of the market, with the market (and coal) a clear winner – as you will see by following the Hog’ scorecard.

Events started with the Australian Coal Association crying foul over the way the wording of the carbon tax legislation has been manipulated to hurt coal.

ACA boss Ralph Hillman noted how the proposed law specifically excludes coal mining from being defined as an emission intensive trade-exposed industry (EITE) despite meeting the criteria.

“This is a dramatic shift from the previous carbon reduction plan legislation,” Hillman said.

At that point it was: Greens one. Coal nil.

But, even as coal’s opponents were celebrating their sneaky victory, other developments were unfolding which would have caused families exposed to the crumbling steel industry to say thank God for coal.

BHP Billiton stepped into a row over the planned sacking of 1000 workers by Bluescope Steel to say that it would find jobs for some of them in its Illawarra Coal operations.

The rest of the coal industry quickly chimed in, expressing an interest in recruiting from a hard-working labour force which had found itself a victim of the high Australian dollar exchange rate, falling productivity, and cut-throat international competition.

That levelled the score to: Greens one. Coal one.

The next round in this real-life game of politics v markets came on Wednesday when BHP Billiton published its financial results for the year to June 30, and in which coal played a leading role in generating both revenue and profits.

The revenue figures alone are enough to cause a greenie to gawk, with the value of metallurgical coal rising by 25% despite severe disruption to shipments because of the Queensland floods which cut production by 13%.

In other words, BHP Billiton produced less metallurgical coal for more money, a comment on how the world wants steel-making coal even if some politicians dislike the stuff.

It was the same picture in thermal (energy) coal, where revenue rose by 29% to $5.5 billion thanks to a 13% increase in overall production.

Thermal coal is not as profitable as metallurgical coal, but the overall picture from BHP Billiton was of a determined effort to continue growing both forms of coal production.

Greens one. Coal two.

Comments from the directors of BHP Billiton about the company’s coal divisions make for interesting reading, and not just because they are largely about expansion plans.

What Australia’s biggest company is doing is sending a clear message that political antics in Canberra will not slow its coal business, because global demand is so strong that any tax attack will simply disappear as a cost passed on to coal consumers.

As well as approving three new metallurgical coal projects in the Bowen Basin during 2011, BHP Billiton is adding 11 million tonnes of export capacity at the Hay Point export terminal.

Thermal coal is also expanding, as this comment from the company show:

“The company’s confidence in the outlook for demand in the Asia Pacific basin was subsequently illustrated by the approval of the $US400 million RX1 project (Australia) that is designed to get product to market rapidly, ahead of further coal preparation plant expansions.”

Australia is not alone in receiving a capital investment boost from BHP Billiton.

The giant Cerrejon mine in Colombia is being boosted to 40 million tonnes a year, which BHP Billiton directors said “highlights the strong growth outlook for BHP Billiton’s energy coal business”

Greens one. Coal three.

Game over (for now).