GREG RAY:’A great day for the world’

Image from Getup上海龙凤论坛‘‘A GREAT day for the world’’, happened this week, thanks to an event in Australia.
Shanghai night field

So our Prime Minister, Mr Abbott, said.

Wow, what does it take to be a ‘‘great day for the world’’ in the eyes of Australia’s paramount leader?

World peace? Hahahaha. Pull the other one.

A vaccine for Ebola. Sighhhh. Not really.

Advance in clean energy? Sit down you twit.

Something that saves lives? Nope.

Something that saves jobs? Awww, sort of looks like that a bit, but not really.

Well what then?

A new coalmine.

Seriously, a new coalmine sent our PM into such a state of rapture that he felt moved to describe it as ‘‘a great day for the world.’’

Yes indeed, a new coalmine jointly owned by BHP Billiton and Japanese giant Mitsubishi. It’s in Queensland, it’s called Caval Ridge, and it will produce 5.5 million tonnes of high-quality hard coking coal a year for however long it lasts.

It will be operated by a fly-in, fly-out workforce whose members will stay in a purpose-built village, and BHP said more than 30,000 people applied for 950 jobs in the mine and its sister operation, Daunia.

Clearly, the announcement is good news for people who want jobs in the mine.

Only last month BHP/Mitsubishi cut 700 jobs from its Queensland mines and a couple of months before that it cut back operations at its Goonyella mine to keep that one in the black.

BHP/Mitsubishi, along with Rio Tinto and the rest of the transglobal mining crowd, have been desperately trying to cut their production costs.

That’s because the world, which only a couple of years ago was so hungry for coking coal that it was prepared to pay more than $US300 a tonne for the stuff, is now practically swimming in oversupply and the price has dropped to about $US113.

Ummm, so how come – you want to know – BHP/Mitsubishi is opening a new mine that will add millions more tonnes to an already oversupplied market?

It’s a signal to its smaller, weaker competitors in coal that BHP/Mitsubishi plans to be the last man standing.

The low prices will send some competitors broke, force mines to close and put hundreds of miners out of work. Those who can’t get their production costs down are doomed, unless prices suddenly surge again, which doesn’t seem likely in the near future.

That’s how it goes, in the cruel marketplace. When margins get squeezed, those with the deepest pockets survive the longest and stand the best chance of still being around when things get better. Ideally, from their point of view, those survivors can them ramp their prices right back up and, with fewer competitors to worry about, keep prices higher for longer.

It’s a bit like airline ticket price wars. A dominant airline creams off the profits for years, until a competitor sniffs the fat margins and tries to muscle in with cheaper fares to steal some market share.

The big player responds with deep discounts until the newcomer falls down dead and then prices go right back up again, probably even higher than before.

So, you might wonder, how does the opening of this new coalmine represent ‘‘a great day for the world’’?

I think we all know the answer to that. It doesn’t. It’s neither good nor bad, really. It’s just a giant mining company marking out its territory to ensure that, when the tide turns and the coking coal price starts ticking up again, it will dominate.

Why would the leader of a supposedly middle-ranking power fall over himself in a display of fawning over this piece of news?

Maybe because Labor leader Bill Shorten, having revealed that his party will go to the next election with a carbon price back on its campaign platform, has effectively painted a big target in the middle of his forehead for the mining industry to aim at, perhaps with a re-run of the expensive advertising campaign it used to stub out Kevin Rudd.

A great day for the world?

Maybe not. But maybe a great opportunity for the Coalition to cement an important ally.

If BHP/Mitsubishi wants to be the last man standing in Australian coal exports, Tony Abbott probably wants something similar for himself in the electoral stakes.