Melanie Burton and Yuka Obayashi
MELBOURNE/TOKYO (Reuters) – Japanese steelmakers have raised concerns with Australian authorities that BHP Group (NYSE:) could become too dominant in global coking coal supplies if it goes ahead with a takeover of Anglo American (JO:).
Australia is the world’s largest exporter of coking coal and a leading supplier to Japan, which accounts for about 60% of its imports, with most steelmaking ingredients coming from Queensland, where BHP and Anglo American are the two largest producers.
Steelmakers’ concerns about BHP’s influence in the coking coal market could derail the deal if the Australian giant returns with a revised bid for Anglo American after its $39 billion bid was rejected last month.
“BHP already has a significant share of the seaborne supply of high-quality hard coking coal and we will take action to ensure that further oligopolization does not hamper reasonable pricing and stable supply,” a JFE Steel spokesman said in rejecting the proposal. clarify what measures they could take.
Representatives of Japanese steel companies have met with Queensland government officials and raised alarms that if the deal goes through, it would concentrate the world’s highest quality coking coal mines in the state’s Bowen Basin in the hands of BHP, two people familiar with the talks said.
The combined group will control 44 million tonnes, or about 13%, of the seaborne coking coal market, according to consultants Wood Mackenzie. This comes even as BHP’s output has fallen following the sale of some mines in recent years.
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“In general we are against the union (BHP-Anglo) because it will create a supplier with a huge market share, especially in the coking coal market,” a source at the Japanese steelmaker said, adding that it was closely monitoring the situation.
“For our part, we wouldn’t want BHP to buy Anglo and have more price competition.”
Queensland Deputy Premier and Treasurer Cameron Dick said BHP would need to ensure its coal remained competitive or risk losing state government support. “We work closely with our Japanese clients and are aware of their concerns,” Dick told Reuters.
“BHP needs to explain to Japanese steelmakers and the wider market how it will ensure a competitive supply of steel-grade coal remains competitive,” he said.
BHP declined to comment for this story but said expanding supplies of high-quality coking coal was the main driver of its tilt towards Anglo.
Anglo American declined to comment.
COKING COAL
Japan’s Fair Trade Commission has the power to investigate the BHP-Anglo American deal and could block the deal if it finds it would harm Japanese companies, two antitrust lawyers in Tokyo said.
However, if the deal is deemed anti-competitive, the commission is likely to ask BHP to propose a remedy, which could include selling the coal, one of the two lawyers said. Both declined to give their names due to the sensitivity of the matter.
The Fair Trading Commission declined to comment on whether it had received any request to examine the BHP-Anglo deal.
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Like JFE, Kobe Steel said it was closely monitoring the proposed deal and the potential increase in BHP’s market power. Nippon Steel was not immediately available for comment.
A key concern for the steelmakers is that BHP has stressed it will not invest in expansion in Queensland after the state raised coal royalties without consulting the industry, a source familiar with the matter told Reuters.
BHP chief executive Mike Henry said last year the company “would not be investing in further growth in Queensland in the current environment”.
Anglo’s Moranbah North and Grosvenor mines are effectively extensions of BHP’s Goonyella mine, which produces the type of coal favored by Japan and India.
The Japanese face increasing competition from India for this coal. BHP already sends 40% of its coking coal to India and expects the country’s demand for the raw material to make steel to double by the end of the decade, chief financial officer Vandita Pant said in March.
Japan could lobby antitrust regulators in other jurisdictions to block a deal if it believes it would affect the competitiveness of the global coke market, as happened when BHP made a bid for iron ore rival Rio Tinto (NYSE:) in 2007 , said one of the lawyers.
Queensland could also complicate the deal.
“The transfer of mineral assets in Queensland requires the approval of a number of state governments. No mining company should take these permits for granted,” said Treasurer Dick.