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Japan's trading houses offload thermal coal assets amid climate concerns
June 13, 2017 / 11:00 AM / 6 months ago

Japan's trading houses offload thermal coal assets amid climate concerns

* Mitsubishi to sell stake in 2 thermal coal mines in Australia

* Mitsubishi may sell stake in another thermal coal mine

* Mitsui, Sojitz to cut thermal coal exposure

By Yuka Obayashi

TOKYO, June 13 (Reuters) - Japanese trading houses including top-ranked Mitsubishi Corp are offloading thermal coal assets on growing concerns about the fuel’s environmental impact, in a move also reflecting a shift in their focus to the more profitable coking coal.

With networks spanning the globe, trading houses are trying to mitigate global criticism around the harm the fuel causes. Japan, which had to burn record amounts of the dirtiest fossil fuel to generate power after the Fukushima disaster in 2011 paralysed its nuclear sector, seeks to slash its carbon emissions by 26 percent by 2030 from 2013 levels.

Among recent thermal coal asset sales by Japanese trading houses is Mitsubishi’s decision to offload its minority stakes in Hunter Valley Operations and Warkworth mine in Australia, tagging along with Rio Tinto’s sale of those assets.

Last week, miner-trader Glencore said it had offered $2.55 billion cash for the Rio mines, outbidding an offer from Chinese-owned Yancoal.

“We’ve decided to sell ... to whichever of the two bidders wins the bid,” Mitsubishi said on Tuesday.

Yancoal has offered to buy Mitsubishi’s stakes for $940 million, while Glencore has offered $920 million cash.

Mitsubishi is also considering selling a stake in the Clermont coal mine in Australia. If sold, the company would be left with a stake in one thermal coal mine.

“It makes sense to sell thermal coal assets as they generate lower profit than coking coal and given global environmental pressure to shift away from coal, but a key question is whether Mitsubishi could buy better assets at low price,” said Nomura Securities senior analyst Yasuhiro Narita.

After posting its first ever annual loss in the year to March 2016 due to a commodity slump, Mitsubishi has been reshuffling its natural resources portfolio to focus on three core assets: coking coal, copper, and liquefied natural gas (LNG).

Other Japanese trading houses have also been cutting or freezing investments in thermal coal.

Last month, Mitsui & Co said it would invest mainly in iron ore, LNG and oil and had no plans to invest in new thermal coal mines amid environmental concerns.

In 2016, Mitsui said it planned to cut its exposure to coal by a third within three years.

Sojitz is also limiting investment in coal.

“We’ll continue to seek opportunities to cut some of our thermal coal assets and raise our coking coal exposure,” Sojitz President Yoji Sato has said, adding that a recovery in thermal coal prices provides a good opportunity to sell stakes in low-quality coal mines.

Thermal coal prices more than doubled from January 2016 to a peak of $109.69 a tonne in November, but have since retreated to $80.79. Coking coal, used to make steel, is currently priced at around $146 per tonne. (Reporting by Yuka Obayashi; Editing by Himani Sarkar)

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