Original by Peter Ker in the Australian Financial Review
Coking coal prices have soared to an 11-week high after Cyclone Debbie tore through the Queensland coalfields and analysts believe prices will continue rising for several weeks.
Spot markets for the bulk commodity rose 15 per cent on Tuesday morning from $US152.30 per tonne to $US175.70 per tonne with steelmakers scrambling to buy cargoes ahead of an expected shortage.
Queensland produces more than 50 per cent of the world’s seaborne coking coal and the railway that carries more than 50 per cent of Queensland’s coal exports, the Goonyella line, will be out of action for about five weeks.
Three other railways that carry Queensland coal are also out of action at the moment, but should be repaired faster than the Goonyella line.
Miners such as BHP Billiton, Rio Tinto, Anglo American, Glencore, Stanmore Coal, Yancoal, Peabody Energy and Wesfarmers are likely to have at least a portion of their exports interrupted.
Many of those miners have already issued a “force majeure” notice, which legally absolves them from meeting their supply contracts, while others are expected to follow soon.
UBS analyst Lachlan Shaw said Tuesday’s 15 per cent price rise was unlikely to be the last.
“A spot price jump in excess of $US100 per tonne or more is entirely possible from this shock,” he said in a note to clients.
Wood Mackenzie analysts speculated that coking coal prices could surge to levels not seen since 2011, when flooding in Queensland caused by Cyclone Yasi sent the price to $US330 per tonne.
“We expect a significant price impact. Price increases to value-in-use levels seen last year and in 2011 are not beyond the realms of possibility,” the analysts said in a note.
The timing of the price rally is particularly inconvenient for coking coal consumers in Korea and Japan, who had until last week seemed likely to win a big reduction in the quarterly contract price for coking coal.
Negotiations for the June quarter price were well advanced and a price settlement between $US150 per tonne and $US160 per tonne appeared likely, suggesting a significant reduction from the $US285 per tonne contract price that has been in force during the three months to March 31.
Credit Suisse predicted the June quarter contract price would now be likely to settle closer to $US180 per tonne in light of the supply disruption.
Indian coal consumers could be among the worst affected by the shortage, with Platts reporting that many Indian buyers had allowed coal stocks to decline in anticipation that the quarterly contract prices would be set lower for the June quarter.
UBS believes the biggest winners from the disruption and the associated price rally will be miners with coking coal assets in other jurisdictions, like South32 and Whitehaven which mine in New South Wales.
Canadian miner Teck is also expected to benefit, along with US miner Peabody Energy, which coincidentally emerged from Chapter 11 bankruptcy on Tuesday.