INVESTMENT PRACTICES IN AUSTRALIAN COAL - THE PRACTICE AND PROFIT OF QUASI-INTEGRATION IN THE AUSTRALIA-JAPAN COAL TRADE

The Australian coal industry has frequently been described as a perpet ual case of 'profitless prosperity', Industry literature on the subjec t usually sources this problem to government charges on the industry a nd to labour costs. However, these alleged problems do not appear to h ave diminished the enthusiasm for new investment in the industry, This study argues that a more complete explanation must look at who is inv esting in the Australian coal industry, what the rationale for those i nvestments is, how they are financed and what their specific profitabi lity is, The particular examination made here is of the quasi-integrat ion investment practices of Japanese trading, steel and power companie s-easily the largest group of buyers in the international coal trade, The close co-operation between Japanese government and business in thi s strategic raw materials industry is documented, as are the methods o f subsidised investment, An examination of the financial performance o f these companies' Australian coal investments shows that the profitab ility of their investments is significantly below that of most other i nvestors in Australian mining over a recent 5-year period, Takes toget her, there is significant support for the conclusion that a process of co-ordinated quasi-integration has taken place and that the principal aim of such investments has not been to make profits from coal-mining , These results should make other prospective investors reconsider the benefits of quasi-integration, and should also be a public policy iss ue for Australian governments seeking to encourage the development of 'profitable prosperity' in the Australian coal industry. (C) 1997 Publ ished by Elsevier Science Ltd. All rights reserved.