The Goldilocks view that Australia’s economy will make a seamless transition from supplying the world with fossil fuel energy and iron ore to the resources and products needed to sustain a global green transition is being tested by reality.
Confirmation on Thursday thatBHP is writing off the value of its Western Australian nickel operationsand considering shutting them down must be a wake-up call that Australia’s prosperity is not preordained.
It follows the wind-down ofAlcoa’s Kwinana alumina refinery south of Perthat a cost of $650m a year to the WA economy. Meanwhile, steel producers are being paid hundreds of millions of dollars in government subsidies to keep them in business in a carbon-constrained world. Aluminium smelters are under intense pressure, and rising energy prices are starting to translate into less industry and higher unemployment more broadly.
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| THEAUSTRALIAN.COM.AU00:44 Thousands of jobs at risk as BHP considers shut down of WA nickel operations |
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The latest data from the Australian Securities & Investments Commission shows almost 1650 manufacturing and construction businesses plunged into insolvency in the six months to December. Figures released on Thursday show unemployment rose to 4.1 per cent in January, a two-year high.
The outlook is compounded bythe rising cost of energy, the fragile nature of the national electricity grid, the financial demands of an ambitious carbon abatement policy, increasing regulation, and the trading practices of our major competitors.
As the Western world begins to shutter its heavy industry, most notably in the former European powerhouse of Germany due to an absence of Russian gas, China in particular is going full steam ahead with coal-fired power.
At the same time, China is exploiting its near monopoly on the rare earths and minerals that underwrite green technologies in a way that makes opening new deposits uneconomic.
Critical minerals carnage
| COMPANY | ACTION |
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| 1 | BHP | Considering mothballing the entirety of its WA nickel division, putting about 3000 jobs at risk and slashing the value of its Nickel West division. Has already flagged closure of its Kambalda nickel concentrator |
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| 2 | Liontown Resources | Lost access to a $760m loan offered only three months ago after the company’s banking syndicate got the jitters on the back of price forecasts |
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| 3 | Wyloo Metals | Putting its Cassini mine in WA into care and maintenance from the end of May |
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| 4 | Chalice Mining | Slashing 40% from its 2024 spending as it waits for a market turnaround to support development of its Gonneville precious and base metals project in WA |
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| 5 | South32 | Undertaking a strategic review of its Cerro Matoso nickel mine in Colombia |
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| 6 | Panoramic Resources | Voluntary administrators suspend Savannah Nickel Project operations in Qld |
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| 7 | First Quantum Minerals | Shutting down mining operations at Ravensthorpe in WA |
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| 8 | Core Lithium | Suspending mining at its Finniss project near Darwin |
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| 9 | IGO | Mothballing under-construction Cosmos nickel mine in WA, with 400 job losses |
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| 10 | IGO, Tianqi and Albemarle | Reducing production at Greenbushes lithium mine in WA to match lower demand |
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Source: Company reports
Overly optimistic assumptions about the future price of commodities such as nickel and lithium are leading to billions of dollars in losses as markets shift to new deposits in places such as Indonesia that do not have the same labour and environmental regulations as competitors such as Canada and Australia.
The closure of BHP’s Nickel West operations would be an effective death knell for the Australian nickel industry, given BHP operates the country’s only nickel smelter and also controls the only Australian refinery.
The big picture is that governments must reassess the feasibility of inflicting ever higher costs and greater regulations on the industries that underwrite today’s budgets and spending on the expectation they will be easily replaced.
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| THEAUSTRALIAN.COM.AU01:57 ‘Terribly sad move’: BHP considers closure of Nickel West operations |
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The call this week for a special levy on energy production and imports to raise $100bn a year to be spent underwriting unspecified industries of the future is a measure of just how disconnected from reality that debate has become.
Both major parties have rejected the suggestion floated by well-known economists Ross Garnaut and Rod Sims, but not the Greens. It is unfortunate the identities of those funding the research that recommends a big new tax on energy were not made public given the high stakes involved and the fact that funds raised would largely be paid as subsidies to those promoting new industries.
Australia is accelerating its green ambition at a time when governments across Europe are pulling back in the face of public revolt against the cost and inconvenience of what policymakers have designed and implemented.
The result of the upcoming election in the US is likely to have a major bearing on what the green future will look like after November.
Governments, both state and federal, must take note of what is happening in the boardrooms where investment decisions are being made about what will happen years into the future.
Squandering energy security and imposing new penalties on coal, gas and other products deemed less desirable by the socially demanding will have long-term economic consequences.
The evidence of this is already apparent. But the fruits of the energy transition, in particular, are less obvious.
Lithium and nickel are the essential metals for a battery-powered future that has been promised. But world markets are not designed to protect the status quo. The evidence is there that Australia is not always able to compete with cheaper supplies from elsewhere. This is a worrying development that must not go unnoticed.
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