Barnett Disease is a malady of the Banana Republic, when a government overrules all sense and begins making bizarre statements, spastic investments and foolhardy forecasts assuming that the commodity boom of yesterday is only just getting going.
It is named after WA Premier Colin Barnett, who has sickened his state’s economy by budgeting for utopian commodity prices, harangued companies for making commercial decisions and pursued totally contradictory mal-investments in massively oversupplied sectors.
Unlike Ebola, no physical contact is needed to spread the disease. Rather, it is far more contagious and can be spread through a computer, a newspaper, even a telephone conversation.
It has already appeared in QLD, where Premier Campbell Newman is forecasting absurd coal royalties while desperately pursuing uneconomic coal investments that will serve no greater purpose than providing a few short term jobs while ensuring that the larger polity gets poorer for much longer on income falls.
The Galilee Basin coal projects are funded by an emerging market baron with links to the Indian Government that is intent upon creating a hugely expensive and uneconomic coal mine (thought to breakeven some 60% above current prices), ensuring that the seaborne price of coal will remain suppressed more or less forever.
Why else wouldn’t they just the buy up the various failing but cheaper coal mines around the country that are going for a song?
An even more vociferous strain of Barnett Disease is at large in Canberra, where budget forecasts for commodity prices are almost as delusional and tax cuts of various kinds are judged to be able to overturn global commodity cycles.
Now, the illness has appeared in South Australia, from the ABC:
The South Australian Government has promised it will create 5,000 new jobs in the mining sector by 2017, after announcing a resource production record of $7.5 billion in the past financial year.
Mineral Resources and Energy Minister Tom Koutsantonis said the new production record, which is up by $1.3 billion on the previous financial year, is attributed to an increase of iron ore and petroleum production, and steady production of copper.
Mr Koutsantonis said the Government aimed to increase the value of mineral and energy resources production to $10 billion per year by 2017, which is where the additional 5,000 jobs would be created.
The jobs target was brought forward before the 2018 state election to hold the Government accountable.
Mr Koutsantonis said the focus would be on employing young South Australians and keeping them in the state.
“We want young South Australians to stay here, not go interstate or abroad to find work and the best way to do that is to have companies spending large amounts of capital here in South Australia because it’s cheaper to hire locals,” Mr Koutsantonis said.
“We’re training people up at Tonsley TAFE, we’re training people up at universities to try and make sure they have access to all the skills they need.”
Mr Koutsantonis said the Government was confident it could further increase production in the state and encourage more mining companies to be based in the state.
…The State Government also announced that an iron ore mine on Eyre Peninsula – which could create more than 700 jobs – had moved a small step closer to gaining approval.
Mr Koutsantonis said the company Iron Road should prepare an Environmental Impact Statement looking at infrastructure needed to support the proposed $4.5 billion mine.
A warning to Mr Koutsantonis, if left untreated by the cleansing balm of creative destruction, Barnett disease can be fatal.
Perhaps taking the proverbial cake, it’s also the case that Barnett disease has spread to (or from) China. That’s the implication of an AFR tidbit, following tumbling iron ore prices:
…one company that may have some extra protection is Fortescue Metals Group.
Street Talk understands that some of Fortescue’s major Chinese steel mill customers have signalled they will back the company should things get really rough. The country’s third-largest iron ore producer has received billions in prepayments from its customers in the past, including $US600 million announced last week. It’s understood some of the bigger steel mills have made it clear they are prepared to stick the course.
A loss-making dog guaranteed by customers seeking lower iron ore prices. I’m not sure why they wouldn’t let it go under and then buy it. Probably because they know that Canberra would give it to BHP for pennies.
In the longer term I don’t think that this strategy will hold anyway. Once Roy Hill, Anglo and Vale complete their ramp ups, FMG can be let go without fear of a price rebound.
In the meantime, the oligarchic disdain at the heart of Barnett Disease has become a pandemic!
