Chinese firms want to buy coal assets overseas, but on the cheap – by Sonali Paul (Reuters U.S. – December 1, 2013)

MELBOURNE, Dec 2 (Reuters) – Chinese companies are on the hunt to buy overseas coal mines as Beijing’s switch to cleaner fuels stokes demand for higher-quality coal produced in countries such as Australia, according to people familiar with the firms’ strategies.

A renewed appetite for acquisitions by the world’s biggest coal consumer will be a big boost for miners who are trying to dispose of assets worth billions of dollars to boost shareholder returns. These include Rio Tinto, which has put Australian and Mozambique coal operations on the block, and Linc Energy , which is selling its New Emerald Coal business.

The Chinese, however, are not rushing to buy. They see asset values coming under further pressure as coal prices remain depressed amid a supply glut that has already driven prices down about a third since 2011.

“We have clients who are interested in taking stakes in coal assets. But the view is the market’s not going to get any better for two years. So why buy something today when it’s going to be a lot cheaper in eight months’ time,” said Sam Farrands, a Hong Kong-based partner at law firm Minter Ellison.

Plans to curb air pollution have raised the prospect of a long-term decline in China’s need for thermal coal, with Beijing aiming to reduce coal’s share of the energy mix to 65 percent or less by 2017 from 73 percent this year.

The lower share, though, will be within an expanding base and it will take a long time to wean China away from coal as it is the cheapest source of fuel for power.

As part of cleaner energy policies announced this week, China will push the use of better quality coal.

This will lead to a split in coal markets, with high-energy coal set to attract a greater premium, which could favour better quality Australian coal, said Michael Elliott, global head of mining and metals at Ernst & Young.

China’s thermal coal imports are forecast to rise 17 percent over five years to 281 million tonnes, and metallurgical coal imports by 23 percent to 107 million tonnes in 2018, according to Australia’s Bureau of Resources and Energy Economics.

“I don’t think (coal use) is going to fall off a cliff. It’s not possible yet,” said Ken Su, China metals and mining leader at consultants PwC in Beijing.

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