Australian steelmakers overstate effect of carbon tax, says analyst

Melbourne (Platts)--4Mar2011/140 am EST/640 GMT

Fears by Australia's two largest steelmakers that plans in Australia to put a price on carbon will decimate their profits and cost thousands of jobs are the "worst-case scenario" that does not factor in emissions allowances and other assistance measures, a Deutsche Bank analyst said Thursday.

Australian Prime Minister Julia Gillard announced plans on February 24 to introduce a fixed price on carbon from July 1, 2012, for up to five years as the first stage of implementing an emissions trading scheme.

The proposal was released for community consultation while a parliamentary committee thrashes out the details, including the price structure.

Opponents of the plan, including the opposition Liberal Party, say it will be A$25/mt ($25.40/mt).

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On that basis, BlueScope Steel says it will be slugged an additional A$300-400 million/year in taxes and OneSteel, an additional A$115 million/year.

"We note this is a worst-case scenario example by the companies and assumes no free permits or any other assistance from the government, pass-through of carbon costs from coal suppliers and no carbon price pass-through to customers," Deutsche Bank research analyst Emily Behncke and research associate John Hynd wrote in an industry alert issued late Thursday.

"The companies have assumed a carbon price of A$25/mt. If the Carbon Pollution Reduction Scheme model was followed, BlueScope and OneSteel could receive carbon permits covering up to 94.5% of the bulk of their carbon emissions in the first year of a carbon price."

Former Prime Minister Kevin Rudd's Carbon Pollution Reduction Scheme, which was put on hold in April 2010 after it failed to pass through parliament, was built around permits being issued to companies to produce a fixed amount of carbon before the tax kicked in, which they could sell any unused portion of to another company wanting to supplement its own allocation.

The authors calculated that based on BlueScope's emissions in the July 2009-June 2010 fiscal year of 12.2 million mt, a price of A$25/mt and an effective shielding rate or permit allowance of 90%, the company would pay around A$30.5 million for carbon in FY2012-13, the first year of implementation, or 7.4% of the profit they forecast the company making in the year.

For OneSteel, based on emissions of 3.9 million mt in FY2009-10, they calculated a carbon cost of A$9.75 million in FY2012-13, representing 1.9% of the profit they forecast for the year.

"While there is political uncertainty about the design of the carbon tax, we think trade-exposed industries like steel will receive extensive assistance under the price on carbon," the authors said.

"We highlight the outcome for the price on carbon is uncertain and still needs to be passed in parliament late second half of calendar 2011."

--Wendy Wells, newsdesk@platts.com