Rain and floods in Australia disrupt coal output in Queensland

Bloomberg reported that record rain and floods in north eastern Australia are disrupting coal output from Xstrata Plc and Rio Tinto Group mines. With more storms coming, prices are forecast to jump from the world's biggest exporter of the fuel.

Mr Peter Maguire mayor of Queensland state's Central Highlands Regional Council, home to Xstrata's Rolleston mine, Rio's Kestrel operation and BHP Billiton Limited's Blackwater venture, said that "It never stops raining. It's forecast to rain until April to May 2011 period."

According to UBS AG forecasts, Australia had its wettest September to November spring on record, and the Bureau of Meteorology says southeastern Queensland and eastern New South Wales have a 60% to 70% chance of getting above average falls during January to March. This means coking coal used by steelmakers may surge 20% to USD 250 a tonne the second quarter of 2011.

The last time Queensland's Bowen Basin, which has 33 coal mines, was hit with similar weather in 2008, coal tripled to a record USD 300 a ton, driving up the price of steel used in cars, aircraft and construction. Queensland had its wettest spring since records began in 1900, receiving 248.2 millimeters of rainfall, almost triple the state's average long term mean of 84.3 millimeters.

Mr Peter Richardson, chief metals economist at Morgan Stanley, said that "We're now seeing with the spot price over USD 240 a tonne that the impact of the rain would be reflected more aggressively in the second quarter price than it would in the first. That's precisely what we're going to see."

Xstrata and Vale SA are among producers who were forced to suspend coal sales this month because of the deluge. The forecast summer rain threatens further gridlock in an industry estimated to earn AUD 33 billion in exports in fiscal 2011. Australia accounts for almost two thirds of the global coking coal trade.

BHP agreed with Japanese steelmakers to cut coking-coal prices by 7% in the current quarter. Kobe Steel Limited will pay USD 209 a tonne. Prices for the first quarter of 2011 were agreed at USD 225 a tonne.

According to UBS, Macarthur Coal Limited, the world's biggest producer of pulverized coal, also declared force majeure this month, a contractual clause that allows companies to miss deliveries because of circumstances beyond their control. About 10 million to 15 million tonnes of output, as much as 10% of Australia’s coking coal exports, may be at risk, similar to 2008.

Coal deliveries to Gladstone Ports Corporation, about 375 miles north of Brisbane, are 40% less than normal. Stockpiles at Dalrymple Bay Coal Terminal, the world’s biggest for coking coal, are at 450,000 tonnes, less than half the average 1 million tonnes.

According to the McCloskey pricing service, thermal coal spot prices for exports from Australia's Newcastle port have risen 31% since the start of the year to USD 115.6 a tonne as of December 17th 2010. Cold weather in the Northern Hemisphere as well as increased imports by China and India is creating short term price pressure.

（Sourced from www.bloomberg.net）