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Japanese investment in Australian coal assets through the demise of concessional financing

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  • West, Jason

Abstract

The Australian coal industry has been described as being a perpetual case of ‘profitless prosperity’. This implies that foreign companies invest in low-margin mining activities with motives other than profit. It is argued that foreign investors and Japanese trading companies in particular used government investment concessions and subsidies to help create oversupply in the seaborne coal market. The aim of this strategy is to depress contract prices at the cost of achieving reasonable profitability levels, which have historically been well below that of other investors in the Australian mining sector. This study shows that the quasi-integration via concessional funding arrangements is not a credible strategy employed by Japanese trading companies or the Japanese Government. The analysis rejects the hypothesis that via foreign direct investment, Japanese companies are securing coal at below average prices. Furthermore we find no clear evidence of Japanese trading companies using their information advantage as equity investors to secure coal at favourable prices during contract negotiations. Finally we examine the investment behaviour of new entrants in the Australian coal production sector to highlight the differences in investment strategy between Japanese companies and other foreign investors regarding the security of supply.

Suggested Citation

  • West, Jason, 2013. "Japanese investment in Australian coal assets through the demise of concessional financing," Energy Policy, Elsevier, vol. 52(C), pages 513-521.
    • Handle: RePEc:eee:enepol:v:52:y:2013:i:c:p:513-521
    DOI: 10.1016/j.enpol.2012.09.075
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    References listed on IDEAS

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    1. Koerner, Richard J., 1993. "The behaviour of pacific metallurgical coal markets : The impact of Japan's acquisition strategy on market price," Resources Policy, Elsevier, vol. 19(1), pages 66-79, March.
    2. Swan, Anthony & Thorpe, Sally & Hogan, Lindsay, 1999. "Australia-Japan coking coal trade: A hedonic analysis under benchmark and fair treatment pricing," Resources Policy, Elsevier, vol. 25(1), pages 15-25, March.
    3. Barnett, Donald W., 1994. "Australia's coal industry : Fuel for growth," Energy Policy, Elsevier, vol. 22(4), pages 353-367, April.
    4. Koerner, Richard J, 1998. "The influence of sogo shosha companies on contract bargaining in the Pacific metallurgical coal trade," Resources Policy, Elsevier, vol. 24(3), pages 167-177, September.
    5. Colley, Peter, 1997. "Investment practices in Australian coal : The practice and profit of quasi-integration in the Australia-Japan coal trade," Energy Policy, Elsevier, vol. 25(12), pages 1013-1025, October.
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