Are BHP and Rio dumping coal?

As investment funds worth more than a trillion dollars pledge to divest from fossil fuels, are BHP and Rio also making a silent exit?

The proposed mass exodus from coal comes on the back of the Paris Climate Change Summit, which has seen anti-coal, -oil, and –gas movements.

"People are voting with their wallets," Amanda McKenzie, chief executive of the Climate Council, told Fairfax Media. 

"The divestment movement worldwide has grown at breakneck speed illustrating the appetite for action on climate change from citizens, cities, businesses and institutions."

Now market rumours have merged that coal giants BHP and Rio Tinto are surreptitiously exiting from a depressed coal market.

This is little surprise as a new set of forecasts from the Institute for Energy Economics and Financial Analysis (IEEFA) shows global coal consumption is on the way down.

The briefing paper ‘Past Peak Coal in China’ claims that peak thermal coal consumption by the world’s leading consumer peaked in 2013, and had suffered a 40 per cent decline since then.

With China responsible for half of the world’s coal consumption, global coal consumption had also peaked in 2013, an outlook running counter to forecasts by the International Energy Agency (IEA) that coal consumption would continue to grow.

However India’s coal consumption is still predicted to more than double by 2030 in an effort to address energy poverty in the nation.

With the volatility seen in coal, there is the growth of a trend for some miners to lessen their exposure through divestment in an apparent offhanded manner, and combining their coal divisions with other operations has painted a picture of an apparent movement by the two majors.

"BHP and Rio have pretty much got out of thermal coal, but most people in Australia, particularly the politicians, have not woken up to this fact," chief executive of 350 Australia, Blair Palese, told the AFR. 

"They [BHP and Rio] have moved away from thermal coal and in doing so have sent a very strong signal to the market."

In the last few years BHP has reduced its coal assets through its South32 spinoff which contained BHP’s Illawarra and South African coal mines, although it retained its Hunter Valley and Queensland coal operations.

Rio Tinto took major steps by combining its coal and copper operations, reducing coal’s position from a standalone division.

More recently Rio sold off its 40 per cent stake in Bengalla for around $865 million.

At the time Rio Tinto copper & coal chief executive Jean-Sébastien Jacques said “this sale [of Bengalla] will deliver value for our shareholders as we remain focused on continuing to develop the strongest core portfolio of assets in the mining industry”.

“It demonstrates our commitment to further strengthening our balance sheet, maintaining a disciplined approach to allocating capital across the Group and delivering strong returns for shareholders through the cycle.”

Speaking at a Bloomberg address last month, Jacques was mixed on coal.

He stated that while it is “facing a PR challenge…it will be part of the global energy solution for years to come”.

However, in terms of whether Rio would consider further divestments, Jacques responded, "If you have a big chequebook, I'm more than happy to take your name."

At the same time both of the major miners have slashed actual output.

Glencore has also reduced its global coal production levels, with the closure of its South African Optimum assets on the cards.

Attacks on the coal market by other fossil fuel majors Shell and Total may have also helped strengthen BHP and Rio’s resolve.

Speaking earlier this week at the World Gas Conference in Paris, Total head Patrick Pouyanne said the company will move away from coal and focus more on the burgeoning gas space.

“I still have a coal business and I have to get out of it,” Pouyanne said.

“I can’t say that coal is the enemy of gas and then continue to produce coal like some of my colleagues. I will get out of coal.”

Shell CEO Ben Van Beurden stated that gas, not coal, needed to be centre of focus in the world energy mix.

“How do we ensure that gas, not coal, is at the heart of the energy solution to meet rising demand,” Van Beurden asked.

Shell has revealed it lobbied the World Bank to halt funding coal-fired plants before the firm announced it would cut lending to the coal sector.

Shell's head of gas, Maarten Wetselaar, made the revelations, stating that the company formed a department whose sole purpose was to lobby governments and funding bodies to look to gas as a power source over coal.

However, in its Climate Change Portfolio Analysis, BHP stated,"demand is not substantially lower than today and so additional quantities of energy coal are likely to be required in order to meet the world’s energy needs. BHP Billiton’s high-quality, low-cost energy coal assets have strong margins and therefore remain attractive despite the reduced demand."

The miner did predict energy coal demand to fall below 2014 actual demand levels, although it did forecast a substantial jump in coking coal demand.

Although BHP chief commercial officer Dean Dalla Valle did add, "The opportunities and risks associated with climate change will not be spread evenly between businesses."

Rio Tinto were contacted for comment on their stance for coal, however it had responded at the time of publication.

 

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