China’s Australia Coal Deal Boosts Link to Fuel-Hungry Worldby
Purchase of Rio Tinto assets includes stake in Port Waratah
Yancoal output doubles while Newcastle allocations rise 45%
China isn’t just buying Australia’s coal assets, it’s also expanding access to the limited infrastructure needed to ship it globally.
Yancoal Australia Ltd.’s $2.45 billion purchase of the biggest slice of Rio Tinto Group’s coal operations will double the Chinese-owned miner’s output in the country. The deal also includes a 36.5 percent stake in Port Waratah Coal Services Ltd., the owner of two terminals at the port of Newcastle, Australia’s main conduit for thermal coal. The amount Yancoal will be permitted to ship will double.
“The Rio operations are long life, so they have plenty of reserves, and Yancoal will benefit from increased port capacity at Newcastle,” said Matthew Boyle, a Sydney-based industry consultant at CRU Group. “This is a definite game changer and Yancoal suddenly becomes a rather large player.”
Yancoal is expanding its clout in the world’s second-biggest shipper of thermal coal as prices of the power station fuel recover from a five-year collapse. The commodity is forecast to remain the dominant fuel in global electricity generation over the next decade amid rising demand from India, China and Japan, in spite of environmental opposition.
The deal for Rio’s Coal & Allied Industries Ltd. will raise Yancoal’s annual output of saleable coal to about 34 million metric tons, making it the biggest coal-only producer in Australia. That compares with mining giant Glencore Plc’s total 66 million tons from Australia in 2015 and parent Yanzhou Coal Mining Co.’s 60.5 million tons last year, including China.
Yancoal’s annual shipment allocations at PWCS, which operates the Carrington and Kooragang terminals, are set to double. The company will pick up an annual allocation of as much as 12 million tons from the deal, on top of its current 12 million, according to spokesman James Rickards. Yancoal also has a 14.6 million ton allocation at Newcastle Coal Infrastructure Group, in which it holds a 27 percent stake.
Through its ownership of Coal & Allied, Yancoal has the right to appoint three directors and make nominations for chairman and chief executive officer of PWCS, according to the port’s website. About 86 percent of its shipments last year were thermal coal, with the remainder coking coal, according to PWCS. About half those cargoes went to Japan.
“In Australia, logistics are very important, especially the port terminals,” Helen Lau, a Hong Kong-based analyst at Argonaut. “You must have your own stakes or facilities to ensure shipments are smooth and won’t be disrupted. If you don’t own access to infrastructure, that makes shipments more expensive.”
Australia shipped 387 million tons of coal in 2015, according to data from the country’s statistics bureau. During the first 11 months of last year, Japan accounted for 31 percent of the country’s total shipments, with China taking 19 percent and South Korea getting 13 percent.
Global thermal coal prices surged last year amid mining restrictions in China. Output by the world’s biggest producer and consumer fell 9.4 percent, while imports reversed two years of declines and rose 25 percent, the fastest pace since 2012. Australia’s Newcastle coal, an Asian benchmark, gained more than 80 percent in 2016, snapping five years of declines.
Yanzhou Coal Mining, which holds 78 percent of Yancoal, said Wednesday that it sees 2016 net income rising 140 percent on higher coal prices. The company is 56 percent owned by Yankuang Group Co., controlled by China’s State-owned Assets Supervision and Administration Commission of Shandong Province.