Abstract
The Australian coal industry has frequently been described as being in a state of ‘profitless prosperity’ referringto the continued investment in low margin mining activities by foreign companies with motives other than profit.Prior research showed that through the use of government investment concessions, foreign trading companiescreated an oversupply of seaborne coal to depress prices at the cost of profitability. This study shows that such‘quasi-integration’ via concessional funding arrangements is no longer a primary strategy employed by foreigntrading companies or governments and finds no evidence of such companies securing coal at below averageprices. This study also finds no clear evidence of foreign trading companies using their implicit informationadvantage as equity investors to secure coal at favourable prices during contract negotiations. The study alsoexamines the investment behaviour of new entrants in the market to highlight the strategic differences betweenforeign investors.
Highlights
The volume of coal produced in Australia and made available for export is expected to rise across all regions in the 10-15 years
The purpose of this study is to investigate if quasi-integration via concessional funding arrangements from government agencies is still a strategy employed by Japanese trading companies and if so, is such a strategy achieving below average prices, volume stability and information advantages for use in contract price negotiation
While significant evidence to support investment practices influencing a persistent oversupply of coal is apparent in previous studies such as Anderson (1987) and Colley (1997), the capacity of Japanese trading companies to influence prices through supply and use information advantages of marginal production costs in contract negotiations has diminished over the period 1997-2010
Summary
The volume of coal produced in Australia and made available for export is expected to rise across all regions in the 10-15 years. The purpose of this study is to investigate if quasi-integration via concessional funding arrangements from government agencies is still a strategy employed by Japanese trading companies and if so, is such a strategy achieving below average prices, volume stability and information advantages for use in contract price negotiation. This analysis will examine the investment behaviour of new entrants in the market from South Korea, China and India to determine if the above advantages serve as the main motive behind their acquisition strategies, or if other reasons such as the security of supply are driving foreign investment in coal assets
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