Floods to be Australia's most expensive disaster

AUSTRALIA’S devastating floods are likely to be the country’s most expensive disaster on record, the national treasurer said yesterday.

Record rainfall, which has flooded an area three times the size of the UK, may leave Queensland state alone with a A$10bn (£6.2bn) damage bill, while Australian GDP is expected to fall by one per cent.

And analysts warned that the long-term impact on industry wold lead to higher and more volatile prices for coal, steel, nickel and other commodities.

“It looks like this is possibly going to be, in economic terms, the largest natural disaster in our history,” said Australian treasurer Wayne Swan.

Aberdeen Asset Management, which holds Australian stocks in its Asia Pacific fund, said share prices had been hit.

“Australian equities have slipped against regional and global benchmarks, led down by the consumer staples sector which is anticipated to be hit harder than others by the flooding. Behind this is interrupted demand, the write-off of this season’s crops and imminent food scarcity,” it said in a briefing.

Just 15 per cent of Queensland’s coalmines were at full production yesterday, the Queensland Resources Council said, estimating that lost sales totalled A$2.3bn.

Nearly two-thirds of global exports of coking coal, used to make steel, come from Australia and coal and steel prices have spiked in anticipation of shortages.

Steel has risen 37 per cent since early November to a two-year high of $783 a tonne, while coking coal is trading at $300 per tonne, up from standard levels of $215 per tonne, consultancy CRU said. Experts estimate it could reach $350 to $500 per tonne.

Aberdeen said mines may struggle to make up lost production as they were already operating at full capacity before the floods.

“The knock-on effects are felt most by Chinese customers who are now scrambling for alternative supplies. Affected contracts cover around 65 per cent of Queensland coal exports,” the briefing said.

Thermal coal, another key manufacturing input, has also seen exports slashed.

“Taken at its worst, the present immediate cut in export can be considered as 78 per cent of state capacity, or about 35 per cent of the country’s recent export level. This represents about seven per cent of global exports,” said Societe Generale analyst Emmanuel Fages.

He said the industry would take up to six months to recover, leaving the market “tighter, hence higher and more volatile” in the long term.

“Once this consolidation episode over, we think that the real impact of the floods is ahead of us,” he said. “Any further shock will lead to rapid price spikes.

“We expect a nervous market featuring higher average prices and higher volatility,” he said.