UPDATE 3-BHP declares force majeure on Queensland coal

(Adds comment from JFE Steel, impact on thermal coal)

SYDNEY, Jan 24 (Reuters) - BHP Billiton BHP.AX and partner Mitsubishi Corp have declared force majeure on coking coal shipments from Queensland mines that produce nearly half of Australia's coal exports after heavy flooding, driving up spot prices ahead of sensitive annual supply talks.

BHP Mitsubishi Alliance (BMA), the world’s largest exporter of coking coal, used for steel making, said it would not be able to meet contractual commitments on coal deliveries. Other miners have also been affected.

BHP said on Thursday it was still assessing the full impact of the recent heavy rains and flooding on its operations, but coal processing as well as the loading of vessels would be delayed.

A spokeswoman from BHP declined to comment on the number of shipments affected and said it was too early to say when coal-loading would resume.

BMA, a 50:50 joint venture between BHP and the trading arm of Japan's Mitsubishi Corp 8058.T, is Australia's largest coal exporter and the world's largest supplier to the seaborne coking coal market.

The supply disruption from the BMA’s Queensland mines, which produced 58 million tonnes of coking coal in 2007 compared with total Australian exports of 120 million tonnes, has already had an impact on prices.

Traders said asking prices for hard coking coal jumped to $211 a tonne on Thursday, having hovered at about $150 a tonne for prompt delivery in December prior to the problems in Queensland.

The surge in spot prices would also make it more difficult for steel mills, such as Nippon Steel Corp 5401.T, to limit price increases in ongoing 2008 contract negotiations with the world top miners, including BHP and Xstrata Plc XTA.L, who are pushing hard for a big rise from last year's $98 a tonne.

“BHP has 33 percent of the global coking coal market so the fall in output is certainly going to tighten the market even further,” said Melbourne-based Mark Pervan, a senior resource analyst at ANZ Bank.

“Some people were expecting 2008 coking coal contract prices to settle at $145 a tonne but we could be looking at something close to $200 a tonne now.”

Xstrata, which has begun contract negotiations with Asian steel mills, has tabled $210 a tonne FOB, Pervan said.

JFE Steel, a unit of JFE Holdings Inc 5411.T and the world's third-biggest steelmaker, said it was difficult to assess the impact of BMA's force majeure without more details on the number of shipments lost. JFE declined to comment on contract prices.

Prices of coking coal have soared in the past year due to tight supplies and burgeoning international steel production in China, India and Brazil.


Resource-rich Queensland has been pounded by heavy rains in the past two weeks, causing flash floods and landslides which have damaged mine equipment and cut access to roads and rail lines.

Some companies have had to use helicopters to evacuate workers stranded at mines, while the state’s emergency services department has dropped food by helicopter to isolated areas and brought in sandbags to construct temporary levees.

BHP said it had begun an assessment of the business impact and recovery planning at all nine mines owned by the BMA venture in central Queensland, with the exception of the Gregory Crinum mine.

The Gregory Crinum mine, which produces about 5.6 million tonnes of coking coal each year, is still isolated by flood waters, BHP spokeswoman Emma Meade said.

Rival Rio Tinto Ltd RIO.AX said on Wednesday that its coal operations in Queensland had seen minimal impact from recent heavy rains, and it expected to resume full production soon. [ID:nSYD304018].

Operations in Queensland mines are expected to be affected for several months, BHP said on Tuesday. Other miners including Xstrata and Macarthur Coal Ltd MCC.AX have also said their operations have been hit by the bad weather.

Spot prices for thermal coal, used for power generation, have been largely sheltered from the latest havoc as about 90 percent of coal exports in Queensland are coking coal. (Additional reporting by Yuko Inoue in Tokyo) (Editing by Lincoln Feast)