Coal Prices Reach Two-Year High as Flooding in Australia Curbs Production

Power station coal prices rose for a seventh week to a more than two-year high and steelmaking coal gained 5.7 percent after heavy rain and flooding curbed output in Australia, the world’s biggest exporter of the fuel. 

The price for thermal coal at the port of Newcastle in New South Wales, the benchmark for Asia, jumped $6.70, or 5.1 percent, to $138.50 a metric ton in the week ended Jan. 14, the highest since September 2008, according to IHS McCloskey, a Petersfield, U.K.-based provider of coal data. 

Queensland’s worst flooding in 50 years may have cost A$2.3 billion ($2.3 billion) in lost coal sales, Queensland Resources Council estimates, with only 15 percent of the state’s mines operating at full production. BHP Billiton Ltd. and Xstrata Plc are among producers who’ve said they may miss deliveries. 

“All the ports are itching to go, none of them have capacity constraints at the moment,” Greg Smith, general manager of operations at the Dalrymple Bay export facility, said by phone. “We’re loading everything we possibly receive. It comes back to the ability of the mines to supplement the stockpiles that we’re drawing down. We’re kind of hand-to-mouth at the moment.” 

Australia is the largest shipper of steelmaking coal and trails only Indonesia in exports of power station coal. The country shipped 259 million tons of the two commodities in 2009, the World Coal Association website shows. The deluge may cut output by about 15 million tons, according to National Australia Bank Ltd. 

Coking Coal Prices

Dalrymple Bay is one of two terminals at Hay Point port, the biggest export harbor for steelmaking coal. The facility is 1,000 kilometers (621 miles) north of the capital, Brisbane. There are 40 ships waiting to load cargoes, with a further eight vessels expected by the end of the month, Smith said.

Australian hard prime coking coal used by steelmakers sold for $280 a metric ton on average last week, up from $265 the week before, according to IHS McCloskey. That’s the highest price for data going back to the week ended Nov. 5. Prices may reach $300 a ton this year, McCloskey said yesterday. 

Some flooded Queensland coal mines may take as many as six weeks to resume production, National Australia Bank analysts led by Michael Bush said yesterday in a report. The stoppages are resulting in about A$600 million of lost revenue a week at current prices, he said. 

Global prices for coking coal may reach between $400 and $500 a ton because of the floods, according to consultant Wood Mackenzie Ltd. The scale of the deluge is worse than the heavy rainfall of 2008, Wood Mackenzie said.

$300 Contracts

Heavy rain and flooding across Queensland in 2008 left steel producers, including Japan’s Nippon Steel Corp. and JFE Holdings Inc., with a threefold increase in annual contract prices to about $300 a ton. 

Australian free-on-board prices may climb to $295 a ton for three-month contracts starting April 1, Ben Westmore, a minerals and energy economist at the National Australia Bank in Melbourne, said Jan. 14. Prices may surge to $292.50 a ton, Melbourne-based Morgan Stanley analysts Peter Richardson and Joel Crane wrote in a Jan. 5 report. 

Steel mills agreed to pay $225 a ton for the three months starting Jan. 1, Bank of America Merrill Lynch analysts said last month. Free on board is a term indicating that delivery at the seller’s expense is included in the invoice price. 

Coking coal suppliers traditionally held annual talks with steelmakers to fix benchmark contracts for the 12 months from April 1, the start of the Japanese financial year. BHP has urged the industry to move to short-term deals to make prices more responsive to market changes. It agreed with JFE Holdings to the first three-month accord in March last year. Source: Bloomberg