Michael Sainsbury and Rick Wallace
FLOODING in Australia’s coal heartland has resulted in a prices surge across Asia that could flow on to coal-dependent steel and electricity.
This will increase already worrying global inflation trends. The region’s two massive growth engines, China and India, have been forced to increase imports of coking coal — used for steelmaking — and thermal coal for generating electricity as the impact of the Queensland floods spreads globally.
The floods have halted millions of tonnes of coal production due for export to Asia and elsewhere. Even when waters recede, it will take time for the mines to fully resume business.
India’s Steel Authority has agreed to pay $US225 per tonne to suppliers including BHP Billiton, 74 per cent more than it paid in the year ended March 31.
“The floods in Australia will affect the price for the second quarter of 2010 on the international market: we expect the price will rise from $US225 per tonne in the first quarter, to $US250 in the second quarter, and the domestic coke price will have a similar rise,” said Yu Hong, analyst at Datong Securities in Shanxi, the largest coal-producing province in China.
Other analysts are tipping rises to up to $US300 per ton this year.
Australia is the largest coking coal supplier, producing more than 40 per cent of global seaborne trade, and is its second-largest exporter after Indonesia, but Asian buyers are scouring the globe for alternatives.
Cumetal analyst Mu Wenxin said imports of coking coal increased dramatically in China: from 6.85 million tonnes in 2008 to 34.49 million in 2009.
Statistics are being calculated for 2010, but imports of 45 million tonnes are expected.
ANZ China economist Li-gang Liu said he expected the coking coal price increases to feed into higher steel prices.
Leading producers — including Xstrata, BHP Billiton, Rio Tinto, Macarthur Coal and Anglo American — have declared force majeure as the worst floods in 50 years stopped them filling orders.
“All steel furnaces with more than 4000 cubic metres capacity need good-quality coke. Australian coke has become irreplaceable to us,” a manager at Shanghai-based Shasteel said in a report provided to The Australian by Custeel. “We expect the price to rise to 2200 yuan per ton ($US337.50) after the floods.”
China’s total coal output for last year is expected to rise some 8 per cent to more than 3 billion tonnes in 2010, according the China Coal Industry Association. That will still not be enough to satisfy demand and imports will be required to fill the gap. Several of Japan’s leading steelmakers are already seeking fresh supplies of coking coal because of the floods.
The mills are concerned that their stockpiles — normally about one month’s supply — will not last until new shipments begin from flood-ravaged Queensland.
Japan’s steel mills depended on Australia for more than 50 per cent of their coking coal supplies in the previous financial year.
The mills are hoping to secure new supplies from North America, Africa and Indonesia.
Shares in several Japanese steelmakers have dropped slightly since the floods, while those of Japanese trading firms such as Mitsubishi and Itochu, which supply the mills, rose sharply last week.
Japanese markets were closed yesterday for a national holiday.
South Korea’s Posco, the world’s third-largest steelmaker, said it had enough coking coal for more than a month but it would face “big trouble” if floods interrupted supplies for longer.
The floods have also affected thermal coal supplies, with spot prices rising and reports that Japanese and South Korean utilities have been scrambling to buy supplies.
Reports emerged yesterday that the floods were forcing up prices for thermal coal as well, with China’s top coal producer, China Shenhua Energy, selling a thermal coal shipment to a South Korean buyer at $US142 per tonne on a free-onboard basis.
The Asian benchmark was $US126.10 a ton at the end of last year, the highest in 27 months. But China’s thermal coal stockpiles remained high despite freezing weather, slipping only 1 per cent last month.
Source: www.theaustralian.com.au
