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Australia floods cut 5% of world coking coal supply
Source: Agencies |
January 12, 2011, Wednesday
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AUSTRALIA'S devastating floods could remove 5 percent or more of steelmaking coal from world markets and lift prices by a third or more, analysts estimated today, as damage and disruption to coal infrastructure continue to spread with the floodwaters.
Australia's Bowen Basin coal district, the heart of the coking coal industry in Queensland state, is slowly emerging from floods that have now raced south, but recovery has been slow, with one Queensland coal port closed and two restricted.
Slightly more than half the world's metallurgical coal exports come from Australia, most of it destined for steelmakers in Asia. Roughly 90 percent of that coal comes from Queensland, mostly the Bowen Basin.
Commonwealth Bank of Australia (CBA) in a report said the floods could remove nearly 14 million tons of coking coal from world markets, and that figure could rise if rains returned to the Bowen Basin.
CBA also said it expected the emerging supply shortfall to drive contract coking coal prices 30 percent higher to US$293 a ton in the second quarter from around the US$225, free on board, being charged by BHP Billiton to Japanese customers in the current quarter.
"Open-cut mines are flooded, mine roads and railways are underwater and/or washed out," the bank said in a report.
"Full recovery will take months and that assumes rains stop, despite another two to three months of the wet season to go."
Energy consultancy Wood Mackenzie sees hard coking coal spot prices exceeding US$400 per ton. Moody's predicts a more modest increase to US$300 a ton.
Deutsche Bank has revised up its overall fiscal 2011 hard-coking and soft-coking coal prices by 22-25 percent.
Hard coking coal spot prices reached a peak of US$350 to US$375 a ton in 2008, the last time Australia's collieries faced serious flooding.
The impact from flooding so far on thermal coal markets is less dramatic. CBA estimates 3.6 million tons -- less than 2 percent of total Australian output last year -- will be lost.
But with some thermal coal exports being diverted to meet demand for metallurgical coal, thermal prices are also on an upward trajectory, with prices up US$10 overnight to the highest in a year.
Thermal prices could meet or exceed the high of US$197 per ton free-on-board Newcastle seen in 2008, according to Wood Mackenzie.
Showers are forecast for the rest of this week around the Bowen Basin coal centers of Emerald and Rockhampton, but the heavy rains have passed and clear skies are expected by the weekend.
If rains continue to abate, coal exports could pick up in the second quarter, according to UBS.
But because coal miners were already operating at full capacity before the floods, "there's only a return to where we were, no catch-up," it said.
Australia's largest coking-coal export terminal, Dalrymple Bay, has only operated at 60 percent of normal volumes so far in January and is concerned inventories of coal held by mines will run out.
Following the wettest November and December on record, more than 40 mines suspended operations.
Since floods began receding in the Bowen Basin this week, the coal sector has suffered yet more setbacks as rains flooded out another rail line further south, forcing more collieries to close.
Australian ports and rail operator Asciano warned the closures were hurting its business.
Australia's Bowen Basin coal district, the heart of the coking coal industry in Queensland state, is slowly emerging from floods that have now raced south, but recovery has been slow, with one Queensland coal port closed and two restricted.
Slightly more than half the world's metallurgical coal exports come from Australia, most of it destined for steelmakers in Asia. Roughly 90 percent of that coal comes from Queensland, mostly the Bowen Basin.
Commonwealth Bank of Australia (CBA) in a report said the floods could remove nearly 14 million tons of coking coal from world markets, and that figure could rise if rains returned to the Bowen Basin.
CBA also said it expected the emerging supply shortfall to drive contract coking coal prices 30 percent higher to US$293 a ton in the second quarter from around the US$225, free on board, being charged by BHP Billiton to Japanese customers in the current quarter.
"Open-cut mines are flooded, mine roads and railways are underwater and/or washed out," the bank said in a report.
"Full recovery will take months and that assumes rains stop, despite another two to three months of the wet season to go."
Energy consultancy Wood Mackenzie sees hard coking coal spot prices exceeding US$400 per ton. Moody's predicts a more modest increase to US$300 a ton.
Deutsche Bank has revised up its overall fiscal 2011 hard-coking and soft-coking coal prices by 22-25 percent.
Hard coking coal spot prices reached a peak of US$350 to US$375 a ton in 2008, the last time Australia's collieries faced serious flooding.
The impact from flooding so far on thermal coal markets is less dramatic. CBA estimates 3.6 million tons -- less than 2 percent of total Australian output last year -- will be lost.
But with some thermal coal exports being diverted to meet demand for metallurgical coal, thermal prices are also on an upward trajectory, with prices up US$10 overnight to the highest in a year.
Thermal prices could meet or exceed the high of US$197 per ton free-on-board Newcastle seen in 2008, according to Wood Mackenzie.
Showers are forecast for the rest of this week around the Bowen Basin coal centers of Emerald and Rockhampton, but the heavy rains have passed and clear skies are expected by the weekend.
If rains continue to abate, coal exports could pick up in the second quarter, according to UBS.
But because coal miners were already operating at full capacity before the floods, "there's only a return to where we were, no catch-up," it said.
Australia's largest coking-coal export terminal, Dalrymple Bay, has only operated at 60 percent of normal volumes so far in January and is concerned inventories of coal held by mines will run out.
Following the wettest November and December on record, more than 40 mines suspended operations.
Since floods began receding in the Bowen Basin this week, the coal sector has suffered yet more setbacks as rains flooded out another rail line further south, forcing more collieries to close.
Australian ports and rail operator Asciano warned the closures were hurting its business.
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