Steelmakers’ concerns about BHP’s coking coal market power could derail a deal between BHP and Anglo American.
Japanese steelmakers have raised concerns with Australian authorities that BHP Group could become too dominant in the global supply of coking coal if it goes ahead with a takeover of Anglo American.
Australia is the world’s biggest exporter of coking coal and top supplier to Japan, making up around 60% of its imports, with most of the steelmaking ingredient coming from the state of Queensland, where BHP and Anglo American are the two largest producers.
Steelmakers’ concerns about BHP’s coking coal market power could derail a deal if the Australian giant comes back with a revised bid for Anglo American, after being rebuffed with a $39 billion offer last month.
“BHP already has a large share of the supply of high-quality hard coking coal in the seaborne trade, and we will take measures to ensure that further oligopolization will not impede sound price formation and stable supply,” a JFE Steel spokesperson said, declining to elaborate on what measures they could take.
Representatives of Japanese steelmakers met with Queensland government officials to make the point that if a deal went ahead, it would concentrate the world’s top 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 would control 44 million tons, or about 13%, of the seaborne coking coal market, data from consultants Wood Mackenzie shows. That comes even as BHP’s production has fallen after sales of some mines in recent years.
“In general, we are against the (BHP-Anglo) union as it would create a supplier with a huge market share, especially in the hard-coking coal market,” said a source at a Japanese steelmaker, adding that it was closely monitoring the situation.
“We, for our part, would not want BHP to buy Anglo and gain a stronger price competition power.”
Queensland Deputy Premier and Treasurer Cameron Dick said BHP would need to ensure its coal remains competitive or risk losing state government support.
“We work closely with our Japanese customers and are aware of their concerns,” Dick said. “BHP needs to explain to Japanese steelmakers and the market more broadly how it will ensure the ongoing supply of steelmaking coal remains competitive.”
BHP declined to comment for this story but has said expanding in high quality coking coal was a main driver of its tilt for Anglo.
Japan’s Fair Trade Commission has the authority to investigate a BHP-Anglo American transaction and could block a deal if it found it would harm Japanese companies, two antitrust lawyers in Tokyo said.
However, if a deal was deemed anti-competitive, the commission would likely ask BHP to offer a remedy, which could include a coal divestment, one of the two lawyers said. They both declined to be named due to the sensitivity of the issue.
The Fair Trade Commission declined to comment whether it has received any request to examine the BHP-Anglo deal.
Like JFE, Kobe Steel said it is keeping a close eye on the proposed deal and a potential increase in BHP’s market power.
Japan’s biggest steelmaker, Nippon Steel, declined to comment on the deal, but said it had expressed concern to the Queensland government that its royalty rate hike could result in lower investment in mines and disrupt coking coal supply in the future.
Key among steelmakers’ concerns is that BHP has stressed it will not invest to expand production in Queensland after the state hiked coal royalties without industry consultation, said a source familiar with the matter.
BHP CEO Mike Henry said last year that the company “will not be investing any further growth dollars in Queensland under the current conditions.”