Home Business Nickel miners exploit PM’s battery-making pipe dream

Nickel miners exploit PM’s battery-making pipe dream

Nickel miners exploit PM’s battery-making pipe dream

China’s huge investment in Indonesia has undercut Australia’s higher-cost miners, which are bound by higher ESG standards than developing countries competing to produce critical minerals.

China’s industrial strategy is not beholden to the profit discipline of Western companies, as it seeks to dominate the markets for commodities used in the green energy transition.

The price bubbles have burst for nickel, lithium, cobalt and graphite.

Australian taxpayers should not be riding to the rescue of miners that are losing money.

BHP’s Nickel West mine in WA. AFR

BHP chief executive Mike Henry said on Tuesday that the oversupply of nickel could last to around 2030.

A nickel production tax credit being pushed by other miners – not by BHP – may not be enough to save the local industry, Henry said.

BHP CEO Mike Henry says broader policy settings are more important. Bloomberg.

Far from being a short-term blip that the government can bridge, this is a permanent structural change that miners must adjust to.

Besides, where would the taxpayer support start and end?

Will lithium and cobalt miners be the next ones lining up for help?

Battery making hopes

After all, they know the prime minister has pledged to “make things” in Australia, such as batteries for renewable energy.

The government has said one of its top priorities is to add value to Australia’s critical minerals by fostering more onshore processing and manufacturing.

It’s mostly a pipe dream.

The then-departing Productivity Commission chairman Michael Brennan warned last August that the risk of industry policy was not to “pick winners at random” but worse, picking winners everyone else was picking and not being able to compete.

“Part of what worries me about getting into the new cutting-edge thing is that [it is] the thing that tends to fall dramatically in real price because it is at the frontier of technology,” Brennan said.

It was a prescient warning in light of the subsequent collapse in nickel and lithium prices.

Australia’s high-cost structure from wages and regulations means it will be virtually impossible to produce batteries at-scale.

Australia is much better placed to mine the raw commodities in which it is competitive and to partner with battery manufactures in allied countries such as South Korea, Japan and the United States.

Australia should “friend-shore” from these allies, rather than trying to “on-shore” manufacturing that we will never be competitive in.

Miners should shift to home building

Labor is worried about losing WA seats at the federal election and slipping into minority government.

But economic perspective is needed. The broader economic cost of underwriting miners is likely to be bigger than the direct cost to taxpayers.

WA’s unemployment rate is a low 4.2 per cent.

The 3000 nickel workers at BHP’s Nickel West division represent just 0.19 per cent of employed people in Western Australia.

It is certainly very unfortunate for the workers and their families that their jobs are on the line.

But in a full-employment economy like at present, most of these miners will have little trouble securing jobs.

The home building industry is crying out for construction workers. If we want to help housing affordability and availability, some miners will need to become home builders.

Albanese has a target building 1.2 million homes over the next five years.

A common complaint from builders is that they can’t build the homes because too many workers are employed on high-paying state government, union-backed infrastructure projects and in mining.

As the mining boom turns to bust for some commodities, labour must flow to other stretched sectors.

If the government intervenes, it will simply fuel a misallocation of resources and add to inflation pressures.

Labor needs to grasp that if it wants to run an economy near full employment, its interventions to impede resource reallocation will have a higher economic cost.

BHP’s Henry is right that Australia should focus on its broader policy settings to make Australia as competitive and productive as possible.

This includes tax, industrial relations, competition and permitting approvals.

Labor has just done the opposite by ramming through its second tranche of productivity-sapping workplace laws.

Ken Henry’s mining tax would have helped

On tax, miners now with their hands out to taxpayers have short memories.

Ken Henry’s resource super profits tax in 2010 was designed to deal with the boom and bust cycles in commodities.

Former Treasury boss Ken Henry recommended a mining tax in 2010. Arsineh Houspian

The 40 per cent profits tax proposed by Labor’s Kevin Rudd and Wayne Swan would collect significantly more tax when commodity prices were high.

But when an individual mine began losing money, miners would receive a 40 per cent cash refund.

It was supposed to make marginal mining investments more viable.

Moreover, the cash flow tax would have replaced state royalties, which are typically paid on production, regardless of whether a mine is making a profit or a loss.

History shows miners stridently opposed the refundable cash flow tax.

Now, some want their cake and eat it too by asking for taxpayer handouts.

If Albanese gives in to nickel miners, it will be a greenlight to a conga line of other rent seekers.

As the GST deal shows, once a policy is in place, it’s near impossible to get rid of.

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