Floods To Set Coal Price Soaring

Three-quarters of Queensland’s coal mines have been affected by flooding, with some economists predicting billions of dollars in lost export income.

However some experts believe a reduced supply could push up prices offsetting losses from the floods.

Sue Trinh, a senior strategist with the Royal Bank of Canada, says the floods have hit the Bowen Basin where many of Australia’s coal mines are located.

“Given Queensland represents about well over 50 per cent of Australia’s coal exports, the fact that a lot of these potential coal exports have been stalled is likely to result in weaker export revenues and growth in the very near term for Australia,” she said.

Ms Trinh says the overall impact on trade could be up to $9 billion in lost export income, cutting about 0.5 per cent from economic growth.

Chief economist from AMP Capital Investors Shane Oliver sees a similar impact.

“I bet the worst case of around 0.5 per cent of GDP, which is about $6-$7 billion,” he said.

“Obviously the bulk of that will come via the disruption to coal exports, but agriculture will be a big impact as well and on top of that simple disruption in many of the towns that have been affected.

“I think one has to bear in mind that these things are usually temporary in impact.

“There will be a rebound later in the year, but obviously we’re going through the painful period right now.”

Midsized miner Macarthur Coal says its half-year profit will be impacted by the floods, coming in at the lower end of predictions.

However, it has got product through to the major coal port at Dalrymple Bay.

Wesfarmers Resources says it expects to be back online by early next month, but its mines are cut off from the port at Gladstone.

Andrew Harrington, a commodities analyst at Patersons Securities, says the miners think “this is the worst flooding in memory”.

“Probably about three-quarters of the mines in the Queensland mining regions are under water or impacted through road outages,” he said.

But it is not all bad. Mr Harrington says the floods could boost coal prices because of the expected shortage of product.

“Production costs will ultimately look unattractive,” he said.

“If they’ve produced less coal and had to spend extra money and recover and repair mine sites, the sort of operating cost headline number might look less pretty than it otherwise would have been.

“But the revenue line will be much fatter because prices will be better.”

There are predictions that coking coal could rise over $300 a tonne.

“I think that that’s entirely feasible,” Mr Harrington said.

“If you look back at 2008, prices were around $100 a tonne – contract prices for coking coal. They quickly jumped to $300 a tonne as a result of the flooding that occurred in 2008.

“We are now in a market which is about $240 to $250 a tonne for coking coal – $300 doesn’t seem like a big jump, and now that we’re in a different environment with quarterly pricing rather than annual contracts, prices may move perhaps more rapidly up likewise or sort of perhaps come back down when things are back to normal later in the year.”

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