SYDNEY: Damage to rail lines in cyclone-hit northeast Australia is set to disrupt exports of the steel-making material from the world’s largest coking coal region, underpinning prices and raising the prospect of major producers declaring force majeure.
The extent of the damage, which will hit coal mines operated by BHP Billiton Ltd and Glencore PLC, was revealed in the wake of deadly Cyclone Debbie, which struck last week and left a disaster zone stretching 1,000 km (600 miles). Four people have died in floods in Queensland and New South Wales states, with another three missing.
Coal hauler Aurizon Holdings said on Monday it would take up to five weeks to repair parts of its network of rail lines that connects mines to ports in Queensland, with alternative routes being considered for coal transported on the worst-affected Goonyella line.
Queensland accounts for more than 50 percent of global seaborne coking coal supplies, with Goonyella alone transporting more than half of the state’s coal – mostly coking coal, used for steel making.
“The entire industry is facing a force majeure issue. I don’t see any way around it if it is going to impact that amount of shipments,” said a senior industry source.
Yancoal Australia Ltd already declared force majeure on its Middlemount mine, with bigger operators waiting to see if they will be able to fulfill contracts with customers in Japan, China, South Korea and India.
The floods are the worst to hit the region since Cyclone Yasi in 2011 which inundated many coal mines and led to a surge in prices as miners struggled to resume output.
By Monday several coal terminals, including Abbot Point and Dalrymple Bay, had reopened but had not yet commenced shipping coal, officials said.
AME Group chief economist Mark Pervan said the export of 12 to 15 million tonnes of coal shipments could be affected.
“We’re talking 3 to 4 percent of global coking supply with a question mark over it,” Pervan said.
The disruptions could push up the price of hard coking coal, currently around $159 a tonne, and feed into second-quarter contract prices between miners and steelmakers, depending on stockpiles held at ports and by steelmakers.
“Once those are depleted expect the spot market to be well bid,” said Commonwealth Bank commodities strategist Vivek Dhar.
US-based coal producer Peabody Energy Corp said its Queensland mines had restarted but it was too early to assess the impact of the rail outages. A Glencore spokesman said coal export volumes would be “significantly impacted” until repairs to the rail system were completed.
Representatives from Anglo American PLC Rio Tinto and BHP, which runs its mines in partnership with Japan’s Mitsubishi Corp, could not immediately comment on the impact of the rail stoppages.
While the low pressure system is moving out to the Tasman Sea, persistent rain and run-off mean floodwaters continue to rise in some areas.
“It’s just debris everywhere, with piles of rubbish and desks and chairs and computers and all sort of stuff just pulled out of shops and put on the kerb,” said emergency services worker Narelle Johnson, speaking to Reuters from the flooded town of Lismore.
“I think in a lot of ways today is when it’s really sort of starting to hit, but the town itself is really pulling together.”
The Insurance Council of Australia said nearly 20,000 claims had already been filed, with an early insured loss figure of A$224 million ($171 million), a number sure to rise. In the cyclone-hit tropics, Australia’s Defence Force was helping to deliver medical personnel and supplies, while tens of thousands of people remain without electricity. At Rockhampton in Queensland, river levels are still rising and are due to peak on Wednesday, with major flooding predicted.