In its recent bullish outlook for big iron ore miners, Macquarie Bank mentioned the rising oil price as one possible positive given it may enable price rises. The miner’s clearly have no pricing power to pass on the rising costs so that is not going to happen. Rather, miners will have to find other costs to shed to offset the rising price of diesel as their margins get squeezed:
Who is most exposed here? Citi has a peripheral note on the diesel rebate that sheds some light:
Political Squeeze — As we head into the 2 July Australian Federal Election, both major political parties are facing budgetary pressures in funding their election promises. The key risk we see for the mining sector is the potential removal of the diesel fuel rebate (could save up to A$3b) as it is less likely to receive much opposition, and has also previously been under threat in the run-up to elections/budgets.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
