Steelmaking coal prices could rise more than a third

AUSTRALIA’S devastating floods could remove over 5% of steelmaking coal from world markets this year and lift prices by a third or more, analysts estimated yesterday, as damage and disruption to coal infrastructure continue to spread.

Australia’s Bowen Basin coal district, the heart of the coking coal industry in Queensland state, is slowly emerging from floods that have since raced south, but recovery has been slow, with one Queensland coal port closed and two restricted.

More than half the world’s metallurgical coal exports come from Australia, most of it destined for steelmakers in Asia. Roughly 90% 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 tonnes of coking coal from world markets, and that figure could rise if rains returned to the Bowen Basin.

That is over 5% of global coking coal exports, forecast to come in at 259 million tonnes in 2011, according to government forecaster Australian Bureau of Agricultural and Resource Economics and Sciences.

CBA also said it expected the emerging supply shortfall to drive contract coking coal prices 30% higher to $293 a tonne in the second quarter from around the $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 $400 per tonne. Moody’s predicts a more modest increase to $300 a tonne.

Deutsche Bank has revised up its overall fiscal 2011 hard-coking and soft-coking coal prices by 22%-25%.