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Suddenly coal prices are booming. Will the entire country be next?
Topic Started: 12 Oct 2016, 10:03 PM (2,526 Views)
Rufus
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Suddenly coal prices are booming. Will the entire country be next?
Peter Martin
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What if, suddenly, we were out of the woods?
Quietly, the mining industry has just doubled the price of coking coal. Instead of getting $US81 per tonne as it did back in March, for the next three months it'll get $US200 per tonne from Japan, the most in four years. And Japan has reason to be grateful. The so-called spot price has surged even higher, to $US213 per tonne.

If it stays there, or even near there, a good chunk of Scott Morrison's budget problems will have vanished, just as they vanished for Peter Costello during the mining boom at the start of the century.

The Committee for the Economic Development of Australia believes Morrison needs to boost the budget by $17 billion per year if he is to get the deficit down to zero by the end of the decade. After a quarter-century of economic growth, that's probably where it should be, if not in surplus.

To date he's shown himself to be incapable of much at all. The much-vaunted "omnibus savings bill" he has just got through the Senate saves $6 billion over four years. It's done it largely at the expense of payments directed to women (family tax benefits and the baby bonus) and students. But at the same time he's got through the Senate $4 billion of high-end tax cuts (which will benefit men more than women because they are twice as likely to earn high incomes).

The net effect on the budget won't be much. It'll be improved if his superannuation tax hikes get through the Senate, and harmed if his company tax cuts get through.

The explosion in the price of coking coal could deliver much more. Access Economics says for every $US1 the price rockets, the budget deficit will improve $65 million. Multiply that by the number of dollars the price has rocketed and you get a boost of $7 billion per year if the new price holds. And that's just for coking coal. The iron ore price is up 40 per cent this year. The price of thermal coal (the stuff that makes electricity) is up 55 per cent. It's not bad for an industry that had been shutting mines and laying off workers.

As is often the case, it's China that's been doing it for us. Part of it is an uptick in residential construction. Apartments need steel, which is made from coking coal and iron ore. The other part is a bureaucratic decision of the kind at which China excels. The central government believed the local authorities were mining too much coal (of both kinds) running up losses in order to chase volume. Rather than require them to turn a profit as Australia would have, it instructed them to cut their hours of operation. In April it forced all of its mines to cut their number of working days from 330 to 276.

Suddenly, Chinese furnaces started needing more foreign coking coal. The world's best is in Queensland's Bowen Basin. Mines that had been shut down quickly reopened. Mines that had been barely profitable suddenly started earning enough to pay tax.

If the price is sustained it'll do more than boost Morrison's budget. HSBC thinks it'll boost nominal GDP by 2 per cent. Nominal GDP is the best measure of the dollar value of wages and profits combined. And because the price will also push up the dollar, the buying power of those dollars will grow. There will be much less need to cut interest rates, most probably letting new Reserve Bank governor Philip Lowe off the hook.

Moody's reported on Wednesday that it expects Australia to become the world's fastest growing AAA-rated commodity exporter, beating Canada, Norway and New Zealand. It's not likely to take away the AAA rating any time soon.

Anyone who doubts that the benefits of that growth will spread should check out research the Reserve Bank conducted a few years back on the effect of the two mining booms at the start of this century. Running a computer simulation to work out what would have happened had those booms not happened it found they lifted real per capita household income by 13 per cent, raised real wages by 6 per cent and cut the unemployment rate by 1.25 percentage points.

Some of us did worse than others. Renters suffered while homeowners prospered. Workers in import-competing industries did less well than workers in industries that serviced mining.

The booms transformed Australia, and more than fixed the budget, without our leaders needing to do a thing.
This time it'll be less spectacular, principally because China can take away what China gives. In September it began loosening its restrictions on mining, allowing 74 mines to operate more days per year. And the rest of the world is in a better position to respond to Chinese demands for resources than it was last time. Our latest brand-new mini-boom might last no more than months, but it's painted a picture of how quickly things can change.
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Khaderbhai
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Wealthy Suburbanite

More good news for the NSW economy, which is already booming.

David Llewellyn-Smith won't be happy about this. Macrobusiness foiled again.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Bardon
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Thermal coal is heating up as well.

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Rastus2
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Bardon
12 Oct 2016, 10:14 PM
Thermal coal is heating up as well.

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yes, interesting... Gladston might just recover faster than I thought.
Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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Rufus
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Rastus2
12 Oct 2016, 10:16 PM

yes, interesting... Gladston might just recover faster than I thought.
It will mean a boost for quite a bit of QLD and it will fill the states coffers, with money to be spent on infrastructure in Qld.
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Jon Snow
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Rufus
12 Oct 2016, 10:21 PM
It will mean a boost for quite a bit of QLD and it will fill the states coffers, with money to be spent on infrastructure in Qld.
Ever the socialist with the hand out.

Coking coal has a temporary supply problem. Enjoy it while it lasts.
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Ambrose Bierce
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Rufus
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Jon Snow
12 Oct 2016, 10:33 PM
Ever the socialist with the hand out.

Coking coal has a temporary supply problem. Enjoy it while it lasts.
Socialist?

I know the state government are looking for money for an upgrade of the M1 stretch between Pine Rivers and where it joins the Highway to the Gold Coast, which has become our major highway although the Federal government are pretending it's not because then they would have to participate in funding, and I know we need to fund a cross town underground rail link, but I won't see any of that.

Eventually I think coal will be redundant, but I'm OK with making money out of it until then.

The socialists that I read want coal mining stopped now, which I think is a bit early.

Coal also puts a lot of money into small country towns in Qld as well as major centres like Mackay and Rocky, but I guess that's not your elitist concern.
Edited by Rufus, 12 Oct 2016, 10:51 PM.
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Mike
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China has finally woken up and realised all its state run enterprises which are not turning a profit are a large threat to the economy. How long till China also closes more Iron Ore mines not turning a profit or reducing production. Iron is up 40% already. The turn around in coal is stunning, which will give a huge boost to QLD, NSW.
http://mike-globaleconomy.blogspot.com.au/
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Rufus
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Mike
13 Oct 2016, 11:50 AM
China has finally woken up and realised all its state run enterprises which are not turning a profit are a large threat to the economy. How long till China also closes more Iron Ore mines not turning a profit or reducing production. Iron is up 40% already. The turn around in coal is stunning, which will give a huge boost to QLD, NSW.
I keep forgetting about country Nth NSW and their coal mines. It will certainly give them a boost as well.
Maybe Nathan Tinkler can save some of his empire.

The coal industry does need to sort out the "black lung" risk for it's workers, and prevent runoff into the reef though. They are major issues.
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Bardon
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Rufus
13 Oct 2016, 01:20 PM
I keep forgetting about country Nth NSW and their coal mines. It will certainly give them a boost as well.
Maybe Nathan Tinkler can save some of his empire.

The coal industry does need to sort out the "black lung" risk for it's workers, and prevent runoff into the reef though. They are major issues.
Both the Hunter Valley and Newcastle load out are huge concerns on any measure. The last time I was there in 2010, the Hunter Valley highway was chock a block solid and they were also installing a couple of gargantuan ship loaders at Newcastle, these suckers were huge. I have also been in the Helensburg mine opened in the Victorian days and still functioning to this day.

As for run off yes this always has to be minimized but it needs to be said that the biggest source of both sediment and nutrient run off from a pollution perspective is associated with cane growers. Most cane growers have insufficient erosion controls and they tend to over fertilize and this find its way into creeks and into the water systems. Soil particles cause turbidity and tend to settle out relatively quickly, but nutrients from fertilizeres remain suspended and cause all kinds of havoc with ecosystems.


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Edited by Bardon, 13 Oct 2016, 02:45 PM.
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