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  1. China’s Australia coal deal snags access to energy-hungry world

China’s Australia coal deal snags access to energy-hungry world

China isn’t just buying Australia’s coal assets, it’s also expanding access to the limited infrastructure needed to ship it globally.

By: | Hong Kong | Published: January 26, 2017 3:59 AM
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. (PTI) 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. (PTI)

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’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% stake in Port Waratah Coal Services, 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.”

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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 will raise Yancoal’s annual output of saleable coal to about 34 million metric tonnes, making it the biggest coal-only producer in Australia. That compares with mining giant Glencore’s total 66 million tonnes from Australia in 2015 and parent Yanzhou Coal Mining’s 60.5 million tonnes 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 tonnes from the deal, on top of its current 12 million, according to spokesman James Rickards. Yancoal also has a 14.6 million tonnes allocation at Newcastle Coal Infrastructure Group, in which it holds a 27% 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% of its shipments last year were thermal coal, with the remainder coking coal, according to PWCS. About half those cargoes went to Japan.

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“In Australia, logistics are very important, especially the port terminals,” said 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 tonnes 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% of the country’s total shipments, with China taking 19% and South Korea getting 13%.

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