Marubeni gives Glencore, Rio tie-up the thumbs down

Foreign investors continue to covet new projects in the Galilee Photo: Glenn Hunt Foreign investors continue to covet new projects in the Galilee Photo: Glenn Hunt
Wuxi Plastic Surgery

Foreign investors continue to covet new projects in the Galilee Photo: Glenn Hunt

Foreign investors continue to covet new projects in the Galilee Photo: Glenn Hunt

A significant partner in Rio Tinto and Glencore’s Australian coal mines has given the prospect of a merger of the mining giants the thumbs down because of concerns about what it would mean for competition.

Marubeni has stakes in the Australian operations of Rio Tinto and Glencore and would be involved if Glencore’s wish to merge coal assets with Rio in NSW came to fruition.

Rio knocked back such an approach this year but Glencore is still circling the Anglo-Australian miner and is keen to arrange a full or partial merger.

Shinichi Kobayashi, chief operating officer of Marubeni’s metals and minerals division, said such a merger would clearly create efficiencies and cost savings for Rio and Glencore, particularly in terms of the distance travelled between Hunter Valley mines and processing facilities.

“It is apparent that there would be synergies,” he said.

But when asked if Marubeni, as an equity holder in the mines, would like to see the joint venture go ahead, Mr Kobayashi said it would not be good for Japanese buyers and would attract the ire of competition regulators.

“From a Japanese customers’ point of view maybe not so good, less competition for the supplies,” he said.

“I think their share of the coal exports from NSW is too big at this time and I believe that some authority may say something because their share would be more than 70 or 80 per cent”

Marubeni metals and minerals division managing executive officer Shinji Kawai said coal prices were sufficiently depressed to ensure that about 60 per cent of Australian and Canadian coal miners were losing money

“If this level of the price continues it is a big problem. The demand side is growing but the supply side is much bigger,” Mr Kawai said.

China recently placed a tariff on coal imports, raising fears of further headwinds for Australian exporters.

Mr Kawai said the tariff was hard to understand in the context of regional trade agreements which were supposed to unify trade structures across Asian and Pacific nations.

In comments that put him at odds with Glencore, Mr Kawai said the five-year outlook for coking coal was better than for thermal coal, but he said Australian thermal coal would remain an important source of energy for Japan and the rest of Asia.

Glencore said recently it expects thermal coal to have better five-year fundamentals than coking coal because of growing demand for power in India.

When asked about the attractiveness of Australia as an investment decision, Mr Kawai said he did not like to see rapid change in policy settings, such as the recent ructions over mining taxes and the carbon tax.

“Stability is very important I think,” he said.

But he said Marubeni was keen to invest in gas projects in Australia if an attractive project could be found.

Citi have forecast coal to move to an average of $US75 ($85) a tonne for 2015 because of a more bullish interpretation of market fundamentals including the new Chinese quality regulations.

The regulations require for local Chinese coal to be washed if it travels a certain distance and falls under a certain threshold.

The result is producers incur more domestic costs for lower grade local coal that has to travel to the coast and thus makes imports more competitive.

For several reasons liquefied natural gas (LNG) utilisation in China is increasing significantly, not least of which are the environmental benefits for LNG-fired power stations as opposed to coal-fired.

Citi commodities strategist Ivan Szpakowski said LNG has been replacing traditional fuels such as kerosene and liquid petroleum gas for residential usage for quite some time.

The biggest jump and relative surprise recently has been the significant demand increase for fuels such as diesel and fuel oil, largely used for heatersh.

The original release of this article first appeared on the website of Wuxi Plastic Surgery Hospital.