What would a BHP takeover of Anglo American mean for shipping?

BHP made an unsolicited $38.8 billion bid for Anglo American which the board of Anglo American branded “opportunistic” and significantly undervaluing the company.

“The BHP proposal is opportunistic and fails to value Anglo American’s prospects, while significantly diluting the relative value upside participation of Anglo American’s shareholders relative to BHP’s shareholders,” said Stuart Chambers, Chairman of Anglo American.

However, BHP could sweeten its offer and has until 22 May to make a binding offer for Anglo American.

What would this possible consolidation of two major charterers mean to the dry bulk shipping sector?

Jayendu Krishna, Deputy-Director Head Maritme Advisors for Drewry, said the combined company would have 77 million tonnes in extra cargo, but this was small in dry bulk terms and there would be, “no earth-shattering impact on the dry bulk market”.

In terms of size and having greater buying power in the freight market he said, “BHP is already a very large player in these markets so it is difficult to see how the extra volumes from AA can see BHP exert more pressure than they already have.”

However, Will Fray, Director with analysts Maritime Strategies International (MSI) sees the merged company having more leverage in the freight market. “As with most mergers, it will take some time for the two companies to fully integrate and benefit from economies of scale and operational efficiencies. However, a larger company will almost immediately have more negotiating power when it comes to freight costs.”

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Taking a different view Pavel Sosnovsky, ISM Report Head of Freight Analytic Department, Chief Editor, commented that the merged company would not have a significantly large enough share of the market to give them the ability to manipulate bulk sector rates.

“In general, I am a bit sceptical about any impact of these types of mergers on the freight market conditions and future trends, because market is driven by cumulative demand for all major and minor commodities and the ratio of newbuildings/demolition trends, other factors are very insignificant,” he said.

Sosnovsky noted that even the rerouting vessels from the Red Sea/Suez Canal had not had a significant impact on the freight market.

Beyond scale in the freight market MSI’s Fray noted the different business philosophies of BHP and Anglo American when it comes to shipping. “BHP has been asset-light and has favoured Contracts of Affreightment (CoAs), whereas Anglo American owns ships and time charters additional tonnage to serve both their own and other miners' requirements.”

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Looking at decarbonisation and investments in alternative fuelled vessels BHP recently announced plans to order ammonia-powered vessels. “The fact that Anglo already owns a fleet of ten newly-delivered LNG dual-fuel Capesize vessels might work well with a potential change in BHP's strategy towards increased ownership of low emissions vessels,” Fray said.