--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Jan 29 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
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
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
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
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
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
It would be hard to construct a more bullish scenario.