Coal prices to soar as floods reach a peak

 
Julian Harris
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TRADERS expect coal prices to rise further after the devastating floods in Australia saw prices jump $10 (£6.40) a tonne earlier in the week.

Both thermal and coking coal prices have risen sharply this year due to the impact of the Australian floods, energy consultancy Wood Mackenzie said yesterday.

Australian coal is used abundantly to produce electricity and in steel making throughout Asia.

Markets in steelmaking coal paused yesterday, but analysts are predicting prices will jump to record highs when trading resumes.

Thermal coal prices could reach or exceed 2008’s record $197 (£126) a tonne free-on-board to Newcastle port, when floods also caused a price spike, Wood Mackenzie said.

Yesterday a February loading South African cargo traded at $129 a tonne, and another cargo on the DES ARA index traded at $132 a tonne.

Coal mining and exports have ground to a halt in Queensland state and Brisbane, with mines closing and transport facing severe obstructions.

The floods are the worst experienced in Australian for a century.

Floods are expected to peak today, as thousands of people are evacuated.

Australia is the world’s second largest thermal coal exporter after Indonesia, a key supplier to the coal-hungry Pacific Rim.

And almost two thirds of global exports of coking or metallurgical coal, which is used for steel making, comes from Australia.

US coal is a possible replacement, yet logistical problems with American ports and rail capacity are thwarting efforts to take advantage of the booming prices and demand.

“The market’s had to take a breather but there’s no doubt as to its direction with all the bottlenecks around the world,” one major European trader said.

“The Queensland coal crisis is bad news for steelmakers worldwide, especially for those without supply contracts in place,” said Moody’s.

“The current metallurgical coal price spikes could nearly double the cost of producing a ton of steel,” the ratings agency added.