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 said 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. 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.
A spokesperson for London-listed Anglo American, one of Australia’s top four miners of coking coal, said the flooding blocked access to the 3.8 million mtpy Dawson mine near Moura in the southern Bowen. A spokesperson for Cockatoo Coal’s Baralaba mine said, “floodwater levels have reached record levels which are equivalent to 1-in-100-year flood design levels.”
Macarthur Coal’s Moorvale and Coppabella operations were affected. On January 7, the company’s Chief Executive Nicole Hollows said it was able to mine coal at Moorvale but the sustained wet weather had slowed recovery at Coppabella. “Once the pits are free of water, we’ll have more coal exposed that can be processed and transported, but it is not possible to predict when we will return to a steady state of mining as that depends on any future rain.”
Wesfarmers Resources’ Curragh operations were returning to normal. The company said flood waters from the Mackenzie River peaked at around 1.5 m, higher than the flood peak during the January 2008 floods.
“Mining will progressively return to normal by early February as we get more employees to site and the overland conveyor returns to service. We have quite a bit of dewatering to undertake and we continue to have follow-up rain,” said Managing Director Stewart Butel.
The largest Bowen Basin port, Dalrymple Bay, is slowly recovering after being forced to operate at 60% capacity owing to the passage of coal trains being blocked by floods and rail line damage. Another large port, Gladstone, was forced to close for some time after exhausting supplies of stockpiled coal. Other export ports at Hay Point and Abbot Point were also impacted but both are now operating at full capacity.
The Blackwater coal rail system was inundated, cutting off the major supply line to Gladstone, the world’s fourth-largest coal export terminal which normally exports 1.3 million mt/week. In the first week of January there were 18 vessels at anchor off the port with a further 12 ships expected in the following days.
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 said 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.
The impact will be greatest in China and the rest of Asia, which depends heavily on coal from Australia to make steel and feed electric utilities. Also affected will be buyers around the world who rely on Asian steel. Integrated steelmakers, who produce steel by melting raw materials such as iron ore and coal, have already been hit by rising iron ore prices.
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 said it could take some weeks to pump water out of its flooded mines.
“It’s going to take some months to come back fully online,” said Queensland Mines Minister Stephen Robertson. 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.
“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,” said Ross Keely, a farm manager who flew over the flooded area. He said kilometer after kilometer of roads south of Emerald had also been washed away, preventing miners returning to pits to cleanup mines and re-start production.