Coal prices tipped to hit US$500 a tonne
Coal prices are tipped to reach $US500 a tonne as the floods across Queensland disrupt operations and limit supply, a research and consulting house says.
Wood Mackenzie, which provides analysis on the energy and metals industries, says mines affected by the floods account for 55 per cent of Australia's total coal exports.
Moreover, the disruption to supply accounted for 91 per cent of Australia's hard coking coal exports, with the majority of clients situated in the Asia-Pacific region.
"The impact of the decrease in exports in this ongoing situation will be felt strongly in global coal markets," Wood Mackenzie said in a statement dated January 14.
"As the rainfalls have intensified on January 11, it is reasonable to assume that hard coking coal prices could reach between $US400 and $US500 per tonne."
The current quarterly contract for hard coking coal, which is used in the steel-making process, was at $US225 a tonne, while spot prices were in the vicinity of $US275 a tonne.
The devastating floods in Queensland have claimed the lives of 17 people and caused billions of dollars in damage.
Rio Tinto Ltd, BHP Billiton Ltd, Anglo American, Xstrata, Wesfarmers Ltd, Macarthur Coal Ltd and a host of others have issued force majeure declarations, a contractual clause that gives companies the ability to miss deliveries due to circumstances beyond their control.
Wood Mackenzie said prices were expected to rise higher than the spike that resulted from the 2008 rains across Queensland because Asian economies were growing faster than two years ago, meaning demand for thermal and metallurgical coal was increasing.
Moreover, the supply of coking coal had been "tight" in 2010, supporting prices well above the cost of marginal production.
"Therefore, most supply regions have been producing at capacity and replacement tonnage will be difficult to secure," Wood Mackenzie said.
Steel production had also increased in October last year, while the situation was exacerbated thanks to supply disruptions in Colombia, Venezuela and South Africa.
While the overall production loss was still uncertain, Wood Mackenzie said if all 46 mines affected by the floods ceased production for a month, that would represent 14 million tonnes of exports.
In terms of thermal coal, which is mainly used for power generation, Wood Mackenzie noted that in the Atlantic basin spot prices had reached $US130 a tonne delivered into Europe.
Meanwhile, in the Pacific basin thermal spot prices had already risen sharply to $US140 per tonne at the port of Newcastle and "could approach or exceed the $US197 per tonne experienced in 2008".