Christmas Message from Vernier

Just to cheer you up a bit, this is focused more on Australia: It is an edited extract from my end of year speech to the Victorian Vernier Society

As far as I am aware, no members of our group or their families have had significant health impacts from Covid. In some parts of the US and Europe, everyone here would know of someone who had died. If Victoria had the same death rate as New Jersey we would have had almost 14,000 people die, Belgium almost 11,000. Overall the increased health precautions seem to have saved more lives than have been lost to Covid. Only a few countries in the world can say that. The number of extra deaths in the US in the 12 months since the end of February will exceed all their deaths in WWII. No jurisdiction that I can find anywhere has recovered from a daily case load of 100 cases per million people to zero as Victoria has.

Although the economy has some way to go, particularly for our friends in the arts community and it will be changed forever, on balance it is recovering well. Employment is recovering and the manufacturing PMI has jumped back above 50 to 53, while 70% of bank customers that deferred loans have resumed payments. Early hints are suggesting that state and federal government deficits, will not be as bad as expected just 6 weeks ago.

Here are some other numbers that might cheer you up.

The second biggest company on the Australian stock Exchange is a manufacturer CSL, worth as much as ANZ and Westpac combined. Earlier in the year it was the most valuable company

In 2006 Australian liabilities to foreigners were 50% larger than Australia’s overseas assets- Today Australian ownership of overseas assets is 10-15% larger than foreigners ownership of Australian assets. Manufacturing companies such as Bluescope, CSL, Resmed, Visy, Orica, Amcor and Orora and our own ANCA and Planet Innovation, have large overseas operations – in many cases larger than their local businesses. Others such as SDI, Lovett Technologies, Cochlear, Aristocrat, Quickstep, Carbon Revolution, Resmed and many others export 90% of their products

Australian manufacturing companies have been buying back the farm, Vegemite is Australian owned for the first time ever. RM Williams, Lion beverages and Owens Illinois Glass have all returned to Australian ownership. An interesting aside is that Visy, the buyer of Owens Illinois, is trying a bit harder to gain Australian business and has recently won back from China much of the glass business for one of Australia’s biggest agricultural product bottlers. Even oil refining and transformer manufacturing although smaller than they were, are now majority Australian owned.

Local companies are investing in advanced manufacturing and Australian companies such as Vernier member H&H are building large machine tools that have never been built here before and there are now at least six Australian companies including our Spee3D building and exporting 3D printing machines using novel technologies. Even government policy has at last shown a chink of recognition that we must maintain some strategic industries, The pandemic supplies manufacturing push was a real success, Vernier members Planet Innovation and ANCA played a key part. A number of our members are reporting order intakes recently up 50% on the same period last year

On the technology front, Australian technology companies such as Atlasian, Computershare and REA world class companies and are making a significant contribution to the economy, employment and foreign income.

As for cost pressures, spot wholesale power and gas prices have more than halved from three years ago and over the next three years some of that will flow through to industrial rates. Further, the transition to renewables which we were all assured would destroy manufacturing, has progressed faster and cheaper than anyone imagined. In spite of what you might read, supply reliability has improved and costs are continuing to fall. In fact because of our vast spaces and an almost unique combination of good wind, plenty of sunshine and high peak hydro capacity, Australia should be one of the lowest cost producers in a renewable world

You all know I am an energy policy nerd. In 2014 I forecast that with supportive policy Australia could reach 24% renewable electricity this year. While the policy has been anything but supportive, we have still been been running at 30% renewables for the last 5 months and the lowest real wholesale prices for at least 10 years. Spot wholesale prices in Victoria have fallen from an average of $109 in 2018/19 to $46 so far this financial year, from 20% above NSW to 12% below. Gas was running between $9 and $12/GJ with spot peaks up to $25 it is now down to $5-6.50. The Victorian Essential Services commission has recommended lower standing offer electricity prices next year.

It now appears that investment in transmission and storage to enable a high renewable economy is far less than was envisaged even a year ago, because the combined output from new technology wind farms and solar farms is more stable and more predictable than was ever expected. Interstate power trading is actually falling down 30% since 2015 and by the end of 2022 SA will be able to run with zero gas for hours or days at a time with just one or two new large batteries and no new transmission. In my view almost all the proposed interstate transmission projects are now unnecessary and uneconomic.

Outside manufacturing, the value of farm production this year will be at a record $67 bn, about double the value of all coal output. Large foreign owned agricultural land holdings have in some cases been returned to Australian ownership. Water storages are up almost 60% on the same time last year. Water prices have fallen from a peak of $900/Ml in March to less than $200 now. For one of my horticulture mates that is about $4 million per year per $100.

In mining as we know, iron ore income is booming as is the value of almost every other commodity except coal and gas, and even those have picked up in the last week or two

You might be surprised to know that income from foreign student fees, travel and accommodation are almost double that from thermal coal. That appeared to be an imminent disaster. However at least for some universities, foreign student income has held up far better than expected as students study from their home countries and many didn’t take the advice to go home in the first place. At least two engineering schools that I know of have gained foreign students

On social policy, we have slowly started to do something about re-invigorating TAFE, making the dole almost livable, improving aged care and building more social housing while boosting spending on mental health. All long overdue moves to make life tolerable to the less fortunate among us.

And finally every cloud has a silver lining, your Christmas wine and lobster will be cheaper than last year.

In summary 2020 has turned out to be a far better year for Australia and manufacturing than anyone expected in June.

A Happy Christmas and a wonderful New Year to you all

Peter Farley