SYDNEY Jan 27 Coal production in Australia's flood-hit Queensland state could drop by between 25 percent and 50 percent this quarter, as the sector starts its recovery, an industry study said on Thursday.
Also as a result of flood damage to mines and transport infrastructure, the Queensland government will miss out on coal royalties of up to A$2.9 million a day for the rest of the financial year, which ends June 30, according to the study by the Queensland Resources Council
"It's not a pretty outlook for the industry or Queensland," the report said.
The production loss estimate was measured against a benchmark of 51 million tonnes of quarterly production.
The actual loss would be determined by how quickly Queensland's coal miners can reactivate operations, according to the report.
"The emptying of coal pits full of rainwater and the restoration of rail and road transport are central to ensuring losses are minimised," the report said.
More than half the world's metallurgical coal exports come from Australia, most of it destined for steelmakers in Asia.
Roughly 90 percent of that coal comes from Queensland, mostly the Bowen Basin. Although Queensland produces mostly coking coal, it also produces some thermal coal used for power generation. Australia is the world's second largest exporter of thermal coal behind Indonesia.
By some estimates, Australia's coal industry is making a faster-than-expected recovery from flooding over the last two months, though some producers are warning that output this quarter will suffer. UBS analyst Tom Price forecasts Queensland will lose about 10 million tonnes of coking coal for the full year in 2011 due to flooding that has already occurred.
Patersons Securities analyst Andrew Harrington said it will be mid-2011 before the sector is back on its feet.
"The mines, the rails, the ports, the ships, and the customers all have to re-align themselves back to the previous logistics pattern," he said.
Macarthur Coal , one of the first coal miners to declare force majeure as the heavy rains started to fall across the Bowen Basin in December, said the disruptions were likely to restrict output through the current quarter. Overall for the sector, production has resumed at more than 80 percent of the state's coal mines, according to Australia's resources minister, Martin Ferguson. A week ago, the Queensland Resources Council said only 15 percent of the state's mines were operating at peak levels, while 60 percent were running under restrictions.
Parts of central and southern Queensland, where the main coal fields exist, received several hundred millimetres of rainfall during December, according to the Australian Bureau of Meteorology, with more heavy rains occurring in the first weeks of January.
The annual wet season, which meteorologists say has been exaggerated by a La Nina event, normally runs until April, leaving open the chance for more rain.
(Additional reporting by Rebekah Kebede; Reporting by James Regan; editing by Sonali Paul)