Only 15 pct of Australia Queensland coal mines fully operating

* Twenty-five percent of Queensland mines still offline
* Recovery likely to take longer than for 2008 floods
* Cost to industry seen at A$2.3 billion

Only 15 percent of the 57 coal mines in Australia's Queensland state are fully operational after devastating floods, with damage to the industry estimated at A$2.3 billion, an industry body said on Tuesday.

Australia accounts for about two-thirds of global coking coal trade, with around 90 percent of that coming from Queensland, and the disruptions have pushed global prices sharply higher as buyers scramble for alternative supplies.

About 60 percent of Queensland mines are operating under restrictions and 25 percent are yet to resume operations after waters flooded coal pits, damaged rail lines and closed ports over the past few months, the Queensland Resources Council said.

Rio Tinto , BHP Billiton and Xstrata are among the companies involved in coal mining in Queensland.

While the majority of coal mines in the region are already either fully or partially back to production, it will still take months until operations return to normal, industry experts say.
"Recovery work has started now for most companies, but it will probably be several months before things are at full capacity. Being up and running is one thing, being at full capacity is another," said Andrew Harrington, an analyst at Patersons Securities in Sydney.


Catching up on lost production will likely be more difficult than in 2008, the last year major flooding hit the Queensland coal industry, when companies swiftly made up about half of the production they had lost during the flooding.

"It's going to be a lot more difficult this time. The rail disruptions are much bigger, the duration and extent of this has been much longer and wider, so it's going to be harder for the total production catch-up to get close to what it achieved in 2008," Harrington said.

Rio Tinto said force majeure declarations put in place at four of its Queensland coal mines due to flooding in December are still in place.

While Rio's Australian hard coking coal output was up by a fifth in 2010, it slid from the third to the fourth quarter and is likely to drop further as the full impact of the Queensland floods is felt.

If coal mines take time to resume output following the Australian floods, leaving steelmakers short of the material, iron ore demand , one of Rio's other major products could suffer as well.

But some say lessons learned in 2008 will help mines get back to full production faster.

"Slightly better prepared assets suggest that they might be back on their feet quicker than expected. There is also the push from the government to make sure the industry is up on its feet as quickly as possible," said Mark Pervan, an analyst with ANZ Bank in Sydney. 

Lost production has already pushed spot prices for hard coking coal above $300 per tonne, and prices are likely to remain at that level or continue to climb for a prolonged period due to the flooding, Morgan Stanley analysts said in a note on Tuesday. 

Hard coking prices could reach as high as $500 per tonne, energy consultancy Wood Mackenzie said last week.

Rail firm QR National , the biggest coal freight firm in the state, has been working around the clock to reopen rail lines and said some key lines would be back in service this week.

"However, it is also clear that the restoration of rail services to mines west of Brisbane and in the Surat Basin are going to take much longer," Queensland Resources Council Chief Executive Michael Roche said. 

Roche also said that environmental regulations, which require treatment of water removed from mines, were hampering efforts to return to normal operation and the Council, which represents mining and exploration firms in the state, has requested an exemption, seeking permission to dump water pumped from mines into creeks. 

Queensland's environmental regulatory body said on Tuesday it had granted temporary permission to 20 coal mines to pump out excess floodwater and is considering applications from another 16 mines.

STEEL MILLS HIT

The surge in coking or metallurgical coal prices is likely to hit steel mills, pushing up prices for steel globally and forcing steelmakers to look elsewhere for coking coal supplies. 

JFE Steel Corp , the world fifth-biggest steelmaker, said it is increasing purchases of coking coal from countries other than Australia, like the United States, China, Russia and Indonesia. JFE relies on Australia for about 80 percent of the 17 million tonnes coking coal it uses per year. 

Steel prices are likely to climb to $780 per tonne in 2011, an increase of 11 percent from the previous forecast of $705 per tonne, according to Morgan Stanley estimates, mostly due to higher input costs as the coking coal market grows tighter. 

But it is a difficult time for steelmakers to be lifting prices given thin demand and some steel mills, particularly in top producer and consumer China, are probably not sticking to planned price hikes. 

"If steelmakers tell the market we're raising our prices to cover out cost, that doesn't mean that they get that," said Scott Laprise, steel analyst at CLSA in Beijing. "In this kind of market I would say the pricing power is not good for steelmakers in general."

 

South Korea's POSCO, the world's No.3 steel producer, last week warned it would be difficult to fully pass on rising costs to customers as it tries to secure its coal needs from regions other than Queensland. ($1 = 1.006 Australian dollars). Source: Reuters