The impact of devastating floods in the Australian state of Queensland will be felt by the global coal industry for many months. The inundation is expected to cost the state’s coal industry at least $1 billion in lost production with the cost of repairs likely to run into hundreds of millions. Internationally, coking coal supplies will be limited with prices already increasing, an effect that is flowing on to the steel industry, creating pressure on production and prices.
The flooding in December and early January affected much of Queensland, including the rich Bowen Basin coalfields in the center of the state and the Surat Basin to the south, and covered an area greater than the size of Germany and France. It was brought about by above average rainfall saturating catchments, followed by a tropical cyclone dumping near-record rain on many coastal and inland areas, and came at the start of the wet season, which traditionally brings consistent rain and a number of cyclones.
The floods swamped mines and damaged transport links, paralyzing operations that produce 35% of Australia’s estimated 259 million metric tons (mt) of exportable coal. Australia contributes two-thirds of global coking-coal exports.
Queensland’s premier Anna Bligh says the flooding was “without precedent in our recorded history, with so many places in so many diverse parts of the state each affected so critically at once. This is a disaster that is going to cost billions of dollars. “The floods will have a long term effect on the state’s coal industry,” Bligh said. “We have three quarters of our coalfields unable to operate and unable to supply markets. There’s likely to be a significant long term effect from that, not only nationally but internationally. The mining companies and the mining communities are playing their role in helping the recovery effort … but they face a long slow climb back into full production.”
Queensland Resources Council (QRC) chief executive Michael Roche said the export of coal to countries in Asia and Europe has been delayed due to damage caused to railways linking mines to the state’s shipping ports. This has raised fears of a global coal shortage as well as increasing the pressure on Chinese authorities trying to battle mounting inflationary pressures without causing the economy to slow too severely.
The Queensland coal industry now faces an elaborate logistics exercise to get its product to market, with mines to be de-watered, mine infrastructure to be repaired and rail, road and port links to be re-established.
Wood Mackenzie analyst Ben Willacy estimates about 46 mines have been affected directly or indirectly. These mines account for 91% of Australian hard coking coal exports and 100% of (pulverized coal) exports. Based on his estimates, Australia would lose 14 million mt of exports if each of the mines was unable to operate for a month.
A number of miners including Rio Tinto, BHP Billiton, Xstrata, Vale, Anglo American, Peabody Energy, Cockatoo Coal, Macarthur Coal, Aquila Resources and Ensham Resources declared force majeure over mines while other companies in the Bowen and Surat basins, including Caledon Resources, Wesfarmers and Bow Energy, were impacted directly or indirectly at or near their operations. Force majeure allows companies to forgo contractual delivery requirements due to circumstances beyond their control such as in the event of natural disasters.
Analysts expect coking coal prices to rise as much as a third, from US$246 to US$330/mt in the aftermath of the floods. Macquarie Commodities Research says this could be reflected in the next round of quarterly export contracts while limited availability could also generate a steel shortage and a strong increase in the price of steel.
One obstacle preventing companies from resuming full production as soon as possible is they are only permitted to pump some water out of pits and into the still flooded rivers. Anglo American says it could take some weeks to pump water out of its flooded mines.
Queensland Mines Minister Stephen Robertson says, “It’s going to take some months to come back fully online.” In 2008, flooding stalled some mines for as long as six months, but others began producing within six weeks.
The other obstacle is transport with a thorough assessment of road and rail damage not possible until after the floodwaters have cleared. Parts of the Blackwater rail line to Gladstone were washed away by the force of the floodwaters.
Ross Keely, a farm manager who flew over the flooded area, said, “The ballasts have just washed away and the sleepers are hanging in the air. I don’t know how they are going to fix it in a couple of weeks.” He said kilometre after kilometre of roads south of Emerald had also been washed away, preventing miners returning to pits to clean-up mines and re-start production.