--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Jan 29 (Reuters) - Coking coal prices are likely to get a lift from the flooding in Australia's Queensland state, but are unlikely to scale the peaks reached the last time the world's biggest producer was waterlogged.
While television images show floodwaters raging out of control across the state, it appears that, by and large, the major coal producing areas have got off lightly, compared to the devastation wreaked this time two years ago.
The price of coking coal, used in steel-making, hit a record in early 2011 above $300 a tonne as Queensland's mines were flooded, rail infrastructure damaged and ports closed by a tropical cyclone.
The price was around $157 a tonne last week and as reports emerge of mine operations being curtailed and some damage to infrastructure, the likelihood is that it will gain.
However, it appears the bulk of the coal chain has escaped largely unscathed, even though Tropical Cyclone Oswald has claimed lives and destroyed properties across Queensland, which produces about two-thirds of global seaborne coking coal.
Queensland's largest coking coal miner, a joint venture between BHP Billiton and Mitsubishi, has been affected, but the extent of production losses has yet to be quantified, according to a report in The Australian newspaper.
Anglo American, the second-largest producer in Queensland, said operations had been affected, and Peabody Energy's and Yancoal's jointly-owned mine was likely to be closed for three weeks after levees were breached and water entered the pit.
Rail lines feeding Gladstone port have also been closed, and it is possible the exports will be more hampered by inability to move coal from mines to the coast rather than by flooding at the pits.
However, initial assessments appear to support the view that this time isn't nearly as bad as in 2010-11 and output is likely to recover far sooner.
This should limit the potential upside for coking coal, but the weather disruptions appear to be yet another positive factor for prices emerging this year.
COKING LAGS IRON
It is somewhat surprising that coking coal hasn't already posted price gains, given increased demand for iron ore from top importer China amid an improving outlook for steel demand as the economy regains growth momentum.
Coking coal, which lacks a transparent futures or swaps market, has been stuck around $150 a tonne for several months, even as the iron ore price recovered from a three-year low just above $80 a tonne to reach above $150 earlier this month.
This means that iron ore is currently around the same price as coking coal, a far cry from the last time Queensland flooded, when coking coal was twice the price.
Even in more normal supply situations, coking coal usually trades at a premium to iron ore and usually in fairly close correlation.
This relationship has broken down since iron ore started rallying after its low in September last year, despite evidence that major buyer China is ramping up imports.
China bought 7.58 million tonnes of coking coal in December, up from 5.81 million in November, 3.6 million in October and 2.42 million in September.
The December number was 51.4 percent higher than the same month a year earlier and took coking coal imports for 2012 to 53.549 million tonnes, a gain of 20 percent on the prior year.
At the same time iron ore imports have also been strong in recent months, with December's figure exceeding 70 million tonnes for the first time.
But unlike iron ore, China's increased imports have yet to translate into price gains for coking coal, a seemingly unsustainable situation.
The disruptions to Australia's output may be enough to draw attention to the disconnect between coking coal and iron ore, but if not, perhaps the dispute between China and Mongolia will.
Mongolia is still China's top supplier of coking coal, exporting 19 million tonnes in 2012, but this was 4.9 percent less than in 2011.
Australia, in contrast, sent 13.9 million tonnes of coking coal to China last year, a gain of 35 percent on the prior year.
Mongolia's coal exports may be disrupted by efforts by state-owned Erdenes-Tavan Tolgoi to renegotiate what it says is a loss-making 2011 supply deal with the Aluminium Corporation of China (Chalco).
At the moment the dispute is still verbal, but both sides are talking tough and the chances are the matter lands up in the courts, or becomes a protracted fight.
Overall, the coking coal market currently has real supply disruptions in Australia, the threat of disruptions in Mongolia, a more than doubling of imports in top buyer China in the past four months and an unprecedented disconnect with iron ore prices.
It would be hard to construct a more bullish scenario.