Last updated: January 4, 2011 6:44 pm

Australian producers face huge floods bill

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Devastating floods in the north-eastern Australian state of Queensland have wreaked havoc on coal and commodity producers there, industry bodies said, with losses already pegged at A$2bn ($2.01bn) in terms of lost production.

Losses are set to increase as companies start to pump water out of flooded mines. The Queensland Resources Council, an industry trade body, said the floods had cost the coal industry A$1bn in lost production. It warned of further losses.


Already, coal prices have risenand the industry is bracing itself for more disruptions as February is traditionally the wettest month in Queensland.

“It’s going to be hard work to get that back into full production,” Michael Roche, chief executive of the Queensland Resources Council, said. “Mines have a lot of water to deal with.” He called for help from the regional government to pump the water out of the open-pit coal mines.

The impact of the floods is not confined to the coal sector. Agricultural industry body AgForce expects more than A$1bn in lost production, with the export-oriented sugar and cotton industries among the worst affected. The floods have damaged about 50 per cent of Queensland’s agricultural crops, which include sorghum and wheat, it said.

A conservative estimate of lost export revenue from the flooding would be 0.5 per cent to 0.7 per cent of annual gross domestic product, a Royal Bank of Canada note said on Tuesday.

Floods are also affecting the rail link to Port of Gladstone, a key embarkation point for coal exports. Railway links remain disrupted and ships are lining up at ports awaiting fresh supplies. About 20 carriers are waiting to load coal from Gladstone and another 12 ships are expected soon, the port operator said. The port, which has a stockpile capacity of 6m tonnes, currently has only 1m tonnes in reserve.

With Australian coal accounting for two-thirds of the world’s coking coal, used in steel production, the interruption in supplies is forcing consumers of coking coal in Asia to look for alternatives as far away as the US and Canada.

The prospect of more losses pushed the cost of coking coal to about $253 a tonne on Tuesday, up 12.4 per cent from quarterly contracts before the flooding.

The price of thermal coal, used to fire power stations to produce electricity, has risen too. In the Australian port of Newcastle, which serves as a benchmark for the Asian market, thermal coal was quoted on Tuesday at $133.25 a tonne, up 9 per cent over the past two weeks. Thermal coal prices set a 27-month high on Monday of $133.5.

“I expect to see prices higher than they are today,” said Colin Hamilton, coal analyst at Macquarie in London. But he said prices would drop during the second quarter as miners replenished supplies.

Daniel Brebner, commodities analyst at Deutsche Bank in London, added that flooding problems could “worsen over the next several days, exacerbating an event which is the worst in over 100 years”.

He added that the coking coal shortage could prompt steelmakers in China and the rest of Asia to “lower steel production”.

The world’s largest coal producers, including BHP Billiton, Anglo American, Rio Tinto, Xstrata and Peabody Energy, have declared force majeure, in effect saying that they would be unable to meet supply contracts because of events beyond their control.

This is not the first time Australia’s coal industry has been hit by the weather. Coking coal prices set a record high of $300 a tonne in early 2008 after unusually heavy rain disrupted production in Queensland. Since then, many companies have invested in pump equipment. The flooding three years ago resulted in A$1.8bn in lost production for the coal industry.

 
locals load beer into a boat to take back to their flooded home©AFP

Emergency supplies: crates of beer are loaded on to a boat in Rockhampton, Queensland, on Tuesday   

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