Australia's #1 industrial directory for equipment & suppliers

Coal mining supply sector facing super slump

By: Peter Gosnell
26 August, 2011

The mining industry has been vocal in its opposition to the proposed carbon tax, but its suppliers across the board will be hit just as hard if the government has its way.

Coal miners aren’t the only people concerned about the Federal Government’s plans to tax fugitive methane emissions.

Coal sector suppliers also face big losses if the proposed carbon tax chokes investment.

The most recent available figures for recurrent annual expenditure by the Australian coal sector show that in 2008/2009, $16 billion flowed to businesses providing goods and services from firms in the business of extracting coal.

That’s everything from explosives and truck fleets to safety glasses, soap and toilet paper. The $16 billion comprised the largest single component of a total $64.1 billion in recurrent expenditure made in that year according to figures from the Australian Bureau of Statistics (ABS), the Queensland and NSW governments and the Australian Coal Association (ACA).

The figure does not include a further $5 billion paid to contractors and sub-contractors, $900 million to providers of research and development services or $2.1 billion paid to the finance industry for insurance and the like.

So out of total income of $64.1 billion, suppliers took 25 per cent. If the carbon dioxide tax savages activity in the way many in the industry suggest, those same suppliers stand to lose a sizeable chunk of their annual sales if they don’t raise prices.

You’d think the bosses of the suppliers would be objecting. But the headquarters of Komatsu, Westrac, Metso and other supply-side players are silent. Maybe the chief executives and managing directors are paying lobbyists to do their agitating? Maybe the threat these potential losses pose to executive bonuses has rendered them speechless?

The ACA and the Minerals Council of Australia (ACA) by contrast have been among the tax’s most vocal opponents. The ACA is continuously researching and updating the potential impact of a carbon tax as the Federal Government pursues a deal on carbon pricing and its application with the Greens and Independents on the multi-party climate change committee.

The ACA has commissioned research firm ACIL-Tasman to survey the industry in an attempt to model the impact of a tax on carbon dioxide.

Some of that research has been released in its report: Impact of Proposed Carbon Price on Black Coal Mining and senior ACIL Tasman consultant Ken Willet told IndustrySearch that his team’s modeling suggested the supply sector will have to find new markets or take a hit.

"The implications for the supply sector depend on the extent to which existing mines run down faster, which they do because you get some premature closures, and the extent to which the new mines are able to compensate for that and maybe increase it," Willet said.

"It looks like the new miners are going to struggle to lift production above the horizontal.

"We have not yet tried to match up yet the two parts of the survey to see what conclusions we can reach about the capacity of those new projects to compensate for the downturn in production from existing mines which must inevitably come because it’s an exhaustible resource and must come faster when you shut down some mines prematurely."

This is the $64 million question facing the coal industry suppliers. It may be that their best years are behind them.

The ACIL Tasman survey and research for the ACA found that applying a carbon tax to an estimated 30 new projects cut that new production by more than 30 per cent.

It suggests that the carbon price won’t kill growth but it will stunt it. And that’s with coal prices at historic highs.

Supply sector bosses must be praying the renewable energy industries proposed as replacements for coal mining will be just as hungry for their products.

Have your say...

We welcome thoughtful comments from readers
Reload characters
Type the characters you see in this box. This helps us prevent automated programs from sending spam.