January 14, 2011 / 3:03 AM / 7 years ago

Cyclone and floods hit Asia-Pacific commodities

SYDNEY (Reuters) - A tropical cyclone forced five mines in New Caledonia producing 4 percent of the world’s nickel to shut on Friday, while flooding in Australia shut in millions of metric tons in coal and aluminum exports.

Severe weather is raising the cost of raw materials, potentially fuelling inflation in the industrial heartlands of Asia, which rely on the commodities to produce steel, generate power and make everything from bathroom fixtures to airplanes.

The price of steel making coal from Australia has jumped 35 percent since flooding caused by monsoon rains just before Christmas idled nearly 50 mines in Queensland state, while London Metal Exchange-traded nickel has risen 8 percent since Monday to an eight-month high of $25,999 on Thursday.

New Caledonia, sandwiched between Tahiti and Australia and home to a quarter of world’s known nickel reserves, was on alert on Friday as tropical cyclone Vania was expected to hit the eastern part of the island sometime early on Saturday with wind gusts up to 140 km per hour.

Nickel has been the lifeblood of the island’s economy for more than a century.

The island’s biggest employer, Societe Le Nickel (SLN), has suspended nickel mining at its five locations ahead of the storm, a spokeswoman in the capital Noumea told Reuters by telephone.

SLN’s 55,000-tonnes-per-year Doniambo smelter in Noumea was taking precautionary measures while continuing to operate. SLN is a subsidiary of France’s Eramet.

Much of the nickel produced by SLN is used to manufacture stainless steel in Japan.

Anglo-Swiss mining group Xstrata said it was also taking measures to protect employees and secure the construction site of its $3.85 billion Koniambo nickel project on the island.

Koniambo, 49 percent owned by London-listed Xstrata, is due to start processing ore next year and eventually ramp up to produce 60,000 metric tons a year.

Australia’s QNI Nickel Ltd, which feeds its 30,000-tonnes-per-year Yabulu refinery with nickel ores from New Caledonia, has managed to build ample supplies to ride out any disruption to shipments stemming from the storm, a company spokesman said.

“Part of our wet season strategy this year has been to build up a stockpile that would get us through a couple of months,” QNI‘S spokesman said.

COAL HIT

In Australia, Sydney-based UBS analyst Scott Haslem forecast the floods would wipe out up to 1 percent of economic growth over the fourth quarter of 2010 and first quarter of 2011 owing to the drop in coal exports and lost activity.

But a return to normal could take even longer.

A shortage of pumps big enough to remove millions of liters of water from the mines could delay a recovery for six months, mining contractors and equipment suppliers said.

Australia accounts for about two-thirds of annual global coking coal trade, roughly 160 million metric tons, and Queensland produces 90 percent of Australia’s share.

Flooding could remove 14 million metric tons from world markets, or 5 percent of this year’s global coking coal exports, Commonwealth Bank of Australia has estimated.

“The effort that we are concentrating on today is emergency response,” Queensland premier Anna Bligh told Australian television, saying the floods left parts of the state capital Brisbane looking like a war zone in need of years of reconstruction.

In an early sign of recovery, the Port of Gladstone, a major exit point for millions of tons of coal, said it would begin loading some shipments from Saturday as rail lines reopen and it begins to replenish dangerously low stockpiles.

But export terminals continue to run low on stockpiles and several vital rail corridors were either damaged or under water.

“You need at least two solid weeks of mining before you build enough ground stockpiles up to give you that buffer so you can start shipping coal again,” said Hayden Bairstow, an analyst with CLSA in Sydney.

“We’re talking about February before we see any meaningful increase in shipments.”

“January is going to be a pretty soft month for everyone, just moving whatever stockpiles they had left basically,” Bairstow said.

Rio Tinto late on Thursday declared force majeure after halting shipments of aluminum from its 538,000-tonnes-per-year Boyne Island smelter, underscoring the transport problems still facing the stricken areas.

Force majeure declarations -- legal let-outs to supply contracts due to unforeseen circumstances -- have been in place at Rio Tinto’s coal mines in the region since before Christmas.

Officials are also warning of the risk of further severe flooding in the coming weeks, with two months of the wet season ahead and already overflowing dams, with some requiring seven days to empty to normal levels to cope with more rain.

The port of Brisbane, used to export millions of tons of coal, aluminum and wheat, is closed until flood-related currents subside and piles of debris in its waters are cleared.

Cyclones were also intensifying well off the northeast and northwest coasts of Australia, but posed no immediate threats to populated areas, according to the Australian Bureau of Meteorology.

Woodside Petroleum, which operates offshore oil and gas fields in Western Australia, said it was closely monitoring the storm activity, which was also posing a threat to the Pilbara iron ore district, mined by Rio Tinto, BHP Billiton and Fortescue Metals Group.

Additional reporting by Cecile Lefort, Balazs Koranyi; and Amy Pyett; Editing by Michael Urquhart

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