BHP Group Ltd (ASX: BHP) has a plan to solve its Chinese coal export problem.
BHP is a world-leading resources company, extracting and processing minerals (like iron ore and copper), oil and gas, and has more than 62,000 employees and contractors, primarily in Australia and the Americas. Headquartered in Melbourne, BHP has shares listed on both the ASX and London Stock Exchange (BHP Billiton Plc).
BHP’s Coal Export Plan
BHP and other Australian coal exporters have had trouble getting their coal into China because of unofficial importing restrictions.
However, the resources giant may have found a way to solve its export problem, get higher prices for its coal and decrease its carbon intensity.
What BHP plans to do is sell its coal to Japanese and perhaps South Korean customers. The only issue is that the coal sold to China has around 5,500 kilocalories of energy per kg, whereas Japanese and South Korean customers like at least 6,000 kilocalories of energy per kg.
Apparently BHP has achieved a breakthrough with higher energy content with a process that includes additional washing of the coal.
The question is how much of the coal can be increased to the Japanese energy preference. It is more likely to reduce or change the Mt Arthur production levels rather than alter the product entirely.
If BHP does go ahead with this change then it’s also likely to lead higher production costs, but hopefully it would also lead to higher prices for its coal.
The coal price has been falling in recent months with factors like a warm winter in Europe and over the longer term demand for coal is projected to drop with various countries committing to not open any more coal power plants, with ageing coal plants shutting.
Is BHP A Buy?
BHP may be the best single way to invest into the resources sector because of its multi-commodity approach and focus on shareholder returns. However, I’m generally not a fan of resource businesses because of their cyclical nature.
I much prefer the idea of owning consistently reliable ASX shares like the ones found in the free report below.
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