THE DISTILLERY: At the coalface

BHP Billiton’s new game plan for its coal division has some big national implications. The way in which the mining boom is ending underlines the need for a fresh approach to economic policy and there is a prime example not far from our shores.

The Herald Sun’s Terry McCrann says coal is dealing with higher Queensland state royalties, the carbon tax and the higher value of the Aussie dollar.

“Now coking coal is supposed to be the high-priced, more profitable part of the coal business, especially the coal from the sort of open-pit mines that BHPB has in Queensland. Yet while the country’s biggest coal-miner might have a multi-billion dollar revenue flow from coking coal, and plenty of people – from Canberra and its carbon tax to the Queensland Government with royalties, along with workers and suppliers – are taking slices of that revenue, BHPB and its shareholders are getting zip. It’s not even servicing its capital invested in the coal business. This is an all-too ominous pointer to the dramatic change in fortunes that has suddenly swept over much of the resources sector: from, like BHPB’s coal division, making fabulous profits to being lucky to break even.”

Business Spectator’s Stephen Bartholomeusz explains how even big changes to the structure of the seaborne coal market wouldn’t have been able to change the position of the coal business much.

“The production constraints in Australia forced up prices and brought US coal, some of which is being displaced by the shale gas revolution in the US, into the market and the US now represents the swing producer. While China’s steel production is expected to continue to rise before peaking in about 2025, increasingly it will be able to use recycled scrap and electric arc furnaces, with BHP forecasting a quadrupling of scrap availability in China by 2030. That’s not good news for coal producers. And The Australian’s Barry Fitzgerald has a refreshingly frank take on BHP’s new approach to contractors and projects.

“It’s a story of screwing down mining contractor and services costs and of removing the fat from white-collar jobs in administration and planning and development. And it’s a story of pulling back in a big way from exploration, closing higher-cost and loss-making operations, and divesting less than best in class assets. There is no rocket science in any of this and it should be seen for what it is: a normal response at this point of the commodities cycle.”

Anything that’s BHP has implications for Australia. The Australian Financial Review’s Matthew Stevens argues that the coal industry’s attempts to reclaim profitability should inform the policy discussion from here on in.

“Old king coal, as we say, is under grave pressure in Australia. A return to more natural equilibrium in the supply and demand equations of its global markets has exposed a decade of cost inflation that has undermined its collective standing as the world’s cheapest and best coal supplier. We might still be one of the most reliable suppliers of high-quality coals, but our cost advantage has been squandered. Australia is suddenly the highest marginal cost producer and, as a result, its coal industry has been left the most vulnerable to demand-side shocks.”

And The Australian Financial Review’s editor-in-chief, Michael Stutchbury, says near-certain prime minister in waiting Tony Abbott should look across the Tasman for an economic policy model.

“New Zealand didn’t have a mining boom to shield it from a global financial crisis recession. The February 2011, the Christchurch earthquake flattened much of the country’s second biggest city. Then came a drought. Elected in late 2008 at the start of this bad luck, John Key’s National government also had to deal with the legacy of nearly a decade of a back-sliding and big spending Labour government…Yet, while Wayne Swan’s sixth budget left Australia exiting its mining boom with a fiscal mess, English’s fifth budget a few days later confirmed that New Zealand will be back in surplus in a couple of years.”

Meanwhile in company news, The Australian Financial Review’s Andrew Cornell writes that ANZ Bank’s decision to neutralise the dividend reinvestment scheme and bonus option plan was “a surprise, but not a shock”. Commonwealth Bank and Westpac have been committed to new capital acquisition restraint.

The Australian Financial Review’s Chanticleer columnist Michael Smith says Wesfarmers boss Richard Goyder is struggling with demand from shareholders to have cash returned to them as management would like to make another transformational acquisition “to ensure Wesfarmers does not stagnate after decades of strong growth”.

Meanwhile, The Australian’s John Durie reports that Goyder believes Australians would complain less if they looked at the rest of the developed world.

Fairfax’s Elizabeth Knight says News Corp billionaire Rupert Murdoch is challenging investors to believe in his ability to restore the financial strength of his struggling print division through “his innovative management flair”.

Fairfax’s Michael Pascoe points out that Australians spend a tiny fraction of their gambling money on sports betting. If you want to tackle problem gambling, you’ve got to go way beyond Waterhouse.

The Australian’s Asia Pacific editor Rowan Callick laments the crickets he’s been hearing since the release of the Asia white paper in October.

The Australian’s economics editor David Uren says the slide in the Australian dollar is clear evidence that the US economic recovery is finally starting to take root.

While more interest rate cuts are likely to come from the Reserve Bank to help take some more heat out of the Australian dollar, the Herald Sun’s Terry McCrann doesn’t expect this to happen at the next meeting.

And The Australian Financial Review’s Jennifer Hewett probably encapsulates the admiration that journalists of all stripes have to departing Labor stalwart Martin Ferguson with this line about how he has conducted himself over his long political career:

“Along the way, he never lost his firm sense of right and wrong – including his distaste for bullshit from whatever quarter. No one could ever doubt his genuineness or his word. As a politician and as a man, he is Mr Anti-Spin.”