This being Australia, we are extremely well placed with our climate to invest heavily in solar power. A new industry where we could lead the world in research and development. Yet in the face of mounting pressure around the world to abandon coal for renewables and the writing on the wall with coal losing market share suddenly and rapidly, the Lieberals can't get past their coal blinkers.
Much will depend on whether the sharp decline in coal prices is structural rather than cyclical. The government and the coal fraternity say it is cyclical, that demand will rebound. There is a good deal of hope factored into this view, hope that appears to also be the basis for the government to provide taxpayer subsidies to back the giant Galilee coal project in Queensland.Why prop up a dying industry with subsides? It's economic madness.
Figures out of China last week showed thermal coal consumption fell 2.1 per cent year on year in 2014. Demand for electricity, however, still rose 3.9 per cent, an unassailable indicator that coal is losing significant market share in the battle against cleaner forms of energy. That 6 per cent loss in market share in China alone in one year can be viewed against the 10 per cent growth every year for the first 10 years of this century.
Unfortunately, most of the profits of this boom found their way overseas. The clean-up will be funded at home.
Yet companies such as Peabody Energy continue to fork out dividends for their shareholders while their liabilities are increasingly at risk. This company, as of yesterday, had an Altman Z-Score (global measure of financial distress) of 0.76. It is in distress zone (anything less than 1.81), implying possible bankruptcy in the next two years.
Peabody is in better shape, though, than the Indian coal producers. A research report by IEEFA's Tim Buckley suggests all three big players in Australia – Adani, GVK and Lanco Infratech (owner of Griffin Coal in WA) – are showing Z-Scores suggesting a real risk of distress. Read more
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