BHP-Anglo American deal raises alarm in Japan's steel industry

Kobe Steel

10/05/2024 04:38

(Adds Nippon Steel comment in paragraph 17)
    By Melanie Burton and Yuka Obayashi
       MELBOURNE/TOKYO, May 9 (Reuters) - Japanese steelmakers
have raised concerns with Australian authorities that BHP Group
 BHP.AX  could become too dominant in the global supply of
coking coal if it goes ahead with a takeover of Anglo American
 AAL.L .
    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 steel-making 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 oligopolisation 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 raising alarm bells 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 steel
maker, 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 told
Reuters.
    "BHP needs to explain to Japanese steelmakers and the market
more broadly how it will ensure the ongoing supply of
steelmaking coal remains competitive," he said. 
    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. 
    Anglo American declined to comment. 
    
    COKING COAL SQUEEZE
    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
anti-trust 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  5406.T  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  5401.T  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, a
source familiar with the matter told Reuters.
    BHP CEO Mike Henry said last year the company "will not be
investing any further growth dollars in Queensland under the
current conditions".
    Anglo's Moranbah North and Grosvenor mines are effectively
an extension of BHP's Goonyella mine, which produces a type of
coal favoured by Japan and India. 
    The Japanese are facing growing competition from India for
that coal. BHP already sends 40% of its coking coal to India and
expects the country's demand for the steel-making ingredient to
double by the end of the decade, CFO Vandita Pant said in March.
    Japan could lobby anti-trust authorities in other
jurisdictions to block a deal if it believes there will be an
impact to the competitiveness of the global coking market, as it
did when BHP made a bid for its iron ore rival Rio Tinto in
2007, one of the lawyers said.
    Queensland could also complicate a deal.
    "The transfer of mineral assets in Queensland are subject to
a number of state government approvals. No resources company
should take those approvals for granted," Treasurer Dick said.
    

 (Reporting by Melanie Burton in Melbourne and Yuka Obayashi in
Tokyo; Additional reporting by Katya Golubkova in Tokyo; Editing
by Sonali Paul)
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