Floods In Australia Hit coking Coal exports

Australia, one of the largest miners and exporters of coal, was hit by floods in Queensland and New South Wales during February 2012. Later, bad weather and labour strikes in the months of further impacted the coal output. In a recent media release, BHP Billiton, the major coal mining company in Australia, declared ‘force majeure’ at its coal mines in Queensland, implying that it has freed itself and the other party from being bound in any type of contract earlier entered into. The company may have declared this as the production has been adversely affected by the prolonged union strikes and heavy rain.

Last year, heavy rainfall and floods halted the mining process in the region, thereby leading to huge shortages of coking coal supply after which the price went up to USD 350 per tonne. However, this year’s floods have not impacted the yield of the mines as much as much as they did in February 2011 primarily because the some mining companies have been able to safeguard their equipment and resume mining operations after a short suspension without much loss.

However, exports, according to the Australian Bureau of Statistics, have taken a hit in the months of January and February. The exports in the month of February have fallen by 2 per cent from January 2012 and this fall can be attributed to the decrease in the exports of coal, coke, etc that has dipped by 16 per cent in February. The short suspension of mining, bad weather and labour strike impacted the export of coal coke in February.

The Indian steel companies largely depend on the Australian miners for their coking coal requirements which account for 70 per cent of the total coking coal imports in the country with the rest sourced from countries like Indonesia, USA, etc. Coking coal remains one of the major raw materials used for producing steel and due to the increase in the coking coal prices the steel companies’ margins got impacted since they were not able to pass on the hike due to subdued demand in the country.

As of now the coking coal prices have cooled off in the international market, hovering at the level of USD 200-220 per tonne from the high of USD 300 in the month of November 2011. This has been on the back of fall in the global demand for steel. However, the current situation of mines in Australia and the labour strike at BHP raises concerns about the supply status for the steel companies across the globe. This will impact the spot coking coal prices and contract prices for the next quarter. We may see a jump of USD 10-15 in the spot coking coal prices in the near term. Indian steel companies such as SAIL, JSW Steel and others which largely depend on coal from Australia may have to bear the hike in the coal prices and this may impact their margins at a time when these companies were just about experiencing some relief on the cost front.