Macarthur, BlueScope, Shares Drop on Australia Carbon Tax Plan

BlueScope Steel Ltd. (BSL), Macarthur Coal Ltd. (MCC) and Virgin Blue Holdings Ltd. (VBA) tumbled in Sydney trading on concern they’ll be among the hardest hit by Australia’s first levy on greenhouse-gas emissions.

Coal mining companies and steelmakers led declines after Prime Minister Julia Gillard said yesterday polluters in Australia, which is reliant on coal to generate 80 percent of its electricity, will pay A$23 ($24.74) per metric ton of carbon emissions. Virgin Blue slumped as the plan will more than double aviation fuel excise.

The developed world’s biggest per capita polluter will require about 500 businesses to pay the charge, raising A$27.8 billion, and offer A$47 billion to assist industry and households and spur renewable energy investment through 2020. Gillard, Australia’s least popular prime minister in 13 years, is counting on the Greens Party and three independent lawmakers to pass her program, while opposition leader Tony Abbott has said he’ll repeal the law if he comes to power.

“Companies that are uncompetitive on a global basis are going to suffer the most,” said Prasad Patkar, who helps manage about $1.7 billion at Platypus Asset Management. “Even after the initial subsidies for certain industries, the carbon tax will bring forward the inevitable for some, which may be closure or withdrawal from the industry.”

The Australian benchmark S&P/ASX 200 index slipped 1.6 percent to 4,582.30 at the 4:10 p.m. close of Sydney trading. The S&P 00 Index in the U.S. lost 0.7 percent July 8 after American employers added 83 percent fewer jobs in June than economists forecast.

Coal Miners

Coal mining companies in Australia will be required to pay for fugitive emissions - gas emitted naturally from coal operations - while receiving A$1.3 billion in compensation, with the biggest polluters getting assistance over six years, according to the government. The tax will make certain projects uneconomical and cost jobs, the Minerals Council said.

“It may very well bring forward closures for some mines that have had continuous issues with gas but it’s a long bow to draw at this stage whether we’ll see previously robust projects put on the backburner as a result of the tax alone,” Tim Schroeders, who helps manage $1 billion in global equities at Pengana Capital Ltd. in Melbourne.

Macarthur, the biggest exporter of pulverized coal used by steelmakers, fell 2.8 percent to A$11.08 in Sydney trading, the most since June 16. After the stock market closed today, Macarthur Coal said it has received an indicative, nonbinding proposal from Peabody Energy Corp. and ArcelorMittal under which they would make an off-market takeover bid to acquire a controlling interest in Macarthur for A$15.50 a share less the amount of the 2011 final dividend which Macarthur pays.

Investment Risk

The Australian Coal Association said overseas coal buyers may switch to other nations, forcing mine closures.

“What is proposed is not good public policy in the best interests of Australia, rather an expedient act of political opportunism,” Seamus French, the head of Anglo American Plc (AAL)’s metallurgical coal business, said in a statement yesterday. “The carbon tax puts at risk current and future coal investments in Australia, the jobs of 40,000 direct employees and the jobs of 100,000 contractors, suppliers and other workers indirectly employed by the coal industry.”

The plan may cost as many as 2,700 industry jobs in Queensland, said the Queensland Resources Council. The state is the world’s biggest exporter of coal used to make steel.

Rio Tinto Group, the world’s second-biggest iron-ore producer, said in a statement that a cut in the diesel rebate was a tax imposed without consultation. Operations such as Rio’s iron ore mines in the Pilbara rely on large diesel-powered earth moving trucks.

Rio fell 1.4 percent, the most since June 16.

Deal Killer?

“There’s no doubt that this is another way in terms of making the mining industry pay more,” said Schroeders. “I don’t think it’s a deal killer and it’s not going to push operations to the wall but it’s another hurdle for the mining industry as a whole to overcome.”

Qantas Airways Ltd. (QAN), Australia’s largest airline, said today the tax will cost as much as A$115 million in the year ending June 30, 2013, while budget carrier Virgin Blue Holdings said higher fares are ‘inevitable.” The excise on aviation kerosene, the fuel mostly used by airlines, will rise by 6.604 cents a liter to 10.16 cents a liter in 2014-15. International airlines in Australia won’t be affected by the levy.

“The impact of the carbon price on domestic airfares will be marginal and against a backdrop where flying is today five times more affordable than it was two decades ago as a result of past Labor reforms such as the deregulation of domestic aviation market,” Australia’s Transport Ministry said in an e-mailed statement. “What’s more, to offset any price rises there will be generous assistance in the form of tax cuts of up A$500 a year and higher payments.”

Qantas slipped 3.3 percent, the most since June 6, while Virgin Blue fell 2.9 percent.

Australia will provide A$9.2 billion over three years to assist the biggest-polluting businesses such as aluminum smelters, steelmakers and pulp manufacturers.

Compensation Plans

BlueScope said yesterday it would receive about 60 percent of the A$300 million in steel industry assistance offered under Gillard’s plan. The rest of the compensation will go to OneSteel Ltd. (OST), BlueScope said in a statement. BlueScope shares slumped 6.7 percent, while OneSteel lost 4.9 percent.

“Moving to a clean energy future is not simply about making sure our existing industries can continue to prosper,” Climate Change Minister Greg Combet said on the Labor Party’s website. “It’s also about laying a platform to allow the clean energy industries and jobs of the future to develop and grow.”

Power generators facing losses in the value of their assets will receive A$5.5 billion in assistance, Gillard said in Canberra. The government will provide loan support to electricity suppliers and payment for the closure of plants to remove as much as 2,000 megawatts of capacity by 2020.

While that offer may help energy producers reduce emissions, some generators will receive nothing and still see their asset values diminished, Brad Page, chief executive officer of the Energy Supply Association of Australia, said in a statement.

Infigen Energy (IFN), a developer of renewable-energy projects, jumped as much as 11 percent and closed 5.4 percent higher.

RBA View

“The level of the tax should be sufficient to incentivize a change in the behavior of heavy polluters, and the assistance proposed in the interim will give them time to plan for the full impact without wiping them out,” said Will Seddon, who helps oversee about $350 million at White Funds Management in Sydney.

The Reserve Bank of Australia will likely “see through” the inflation effects of the carbon tax proposal, said economist Warwick McKibbin, an RBA board member.

Gillard’s estimates of a 0.7 percentage point increase in inflation “sound about right to me and I think the central bank will see through the price effects of this and it will have no impact on policy,” McKibbin, a professor at Australian National University in Canberra, said in an interview today on Bloomberg Television.

“I don’t think it’s going to destroy the economy, but the problem is it’s potentially a very risky policy,” he said. “It’s important that we have a carbon price in Australia. I think this policy, though, is far from the best way to achieve that goal.”

To contact the reporters on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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