Bluescope steeled for worst but shares rose

Bluescope steeled for worst but shares rose

A strange thing happened as carbon pricing laws passed the House of Representatives amid acrimonious debate last October.

The share price for BlueScope Steel – one of Australia’s most greenhouse-intensive export businesses – went up.

By the close of business its share price had leapt 4.9 per cent, following a 13 per cent increase the previous week.

In both cases the growth outstripped the stock exchange benchmark.

“There was simply no sign that the market had a belief the price on pollution would have any adverse effect upon BlueScope Steel,” says the conservation foundation’s Simon O’Connor.

BlueScope was not alone. The share prices for carbon-exposed resources companies Rio Tinto, BHP Billiton and Woodside also rose – by between 1.3 and 0.2 per cent, while the benchmark fell 0.5 per cent.

The sharemarket test may be simple, but it illustrates a point made by several analysts: that the impact of the scheme that starts today may not be in line with what people expect.

Treasury says that, by 2020, incomes will be 0.5 per cent lower than they would be without carbon pricing, but still, on average, $9000 higher than today.

The ageing of the population, and the slow decline in the proportion of people of working age, will do more to slow the growth in what we earn.

The cost of living is expected to jump by 0.7 per cent today, or $9.90 a week for an average household. The start of the GST in July 2000 had an impact more than three times larger, pushing up the consumer price index by 2.5 per cent.

In the short term, at least, those better off include steelmakers – BlueScope and One Steel. Like all big emitters that export into markets where competitors are not facing equivalent carbon prices, they will be compensated for 94.5 per cent of their carbon bill.

They also share a $300 million “steel transformation plan” linked to the carbon legislation, but as much designed to keep them afloat.

The export industry hardest hit by carbon pricing will be aluminium smelting.

Treasury expects aluminium production to be cut by 61 per cent by mid-century as companies such as Alcoa move their operation to places that run on hydropower. But in the short term, it is a winner, or at least not a loser. Its 94.5 per cent compensation is topped up by an additional package covering its electricity bill (initially all of it, declining over time). The government, politically vulnerable and afraid of job losses being linked to the scheme, stresses export industries will not lose out.

“The shielding is so great that we can’t say there is any emissions-intensive, trade-exposed sector that is exposed in the first couple of years,” says Deutsche Bank analyst Tim Jordan.

The clear loser under the scheme, and its primary target, will be electricity generation companies with investments heavily weighted towards coal.

Despite their lower emissions, black coal generators in NSW and Queensland are likely to be more heavily affected in the early years than Victoria’s brown coal generators, though all will face increased costs.

Conversely, wind farms will increase profits. At a company level, winners will include early movers such as multinational GE, which has spent years developing clean products, and innovative start-ups such as Algae Tec, which captures emissions from power plants and use algae to convert them to biofuels.

At a household level, the government says 98 per cent of families on incomes up to $150,000 will get some compensation through tax cuts and family and welfare payments and three-quarters will get at least the full average increase in the cost of living. But households on more than $150,000 and singles on more than $80,000 will be out of pocket.

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