Coal price reacts to reality
Massive spike in coal prices shows the fine line between boom and bust.
Wednesday 05 April 2017
The price for steelmaking coal has rallied more than 15% this week as end users around the world move to shore up supplies in the wake of TC Debbie.
While the direct hit by the cyclone itself had only a modest impact on coal sector infrastructure, the rain associated with it will slash coal production this quarter and close down the coal rail systems for at least a month.
It will also use up all port stockpiles, which will take months if not years to replace given the huge volumes of coal now being exported out of Queensland.
According to the Queensland Department of Environment, BHP is pumping water (with approval) from its Daunia, Peak Downs, Poitrel, Saraji and South Walker Creek mines while Anglo American has begun pumping water from its Lake Lindsay and German Creek operations. Other mines like Ensham, Curragh, Cook Colliery, Lake Vermont and Callide have also started pumping water out of their pits subject to their environmental approvals.
The region's biggest miner BHP, says it expects to have most people back on site soon but has factored in long delays on rail operations.
“All sites except South Walker Creek now have crews returning to work to begin dewatering and preparation for return to operations,” they said in their latest update.
“The Hay Point Terminal is ready to receive coal from the mines and can begin shipping operations once the Harbour Master provides clearance.
"We continue to monitor and work through the impacts on production; we expect to provide an update in the March Operational review.”
Anglo American is back to business telling Shift Miner the only hold up now is the rail.
“Our sites are fully operating and we are managing the aftermath of the weather conditions expeditiously, thanks to the risk-controls that were put in place by our operations.”
Further North, Peabody says its mines have returned to production after the rain, however, because the rail systems are down it’s; “still too early to assess impacts on volume and results, as well as any effects on second quarter price negotiations with metallurgical coal customers”.
Stanmore Coal who declared force Majeure at Isaac Plains before the storm, says the only problem now is the rail.
"Pleasingly the impact on the mine is low with no material damage to company assets or other key equipment," they said.
"Key levee structures more than adequately contained the flow with significant freeboard above the peak water level.
"Repairs have been completed with full access restored, and the mine reopened.
"Whilst the mine is operational, availability of the rail transport infrastructure is less certain given the damage to the Goonyella rail network."
Queensland accounts for more than half of the world's seaborne metallurgical coal supplies, so a disruption to supplies locally has worldwide supply implications.
Global bank UBS estimates supply disruptions could add $US100 to the price of coal, while ANZ expects increases beyond the 15% overnight.
A supply disruption late last year in Australia, coupled with Chinese coal production restrictions sent coal prices spiralling to record highs of around $308 before Christmas.
“It just shows how sensitive the coking coal price is to supply and demand shocks," Former CEO of the Queensland Resources Council Michael Roche said at the time.
“We saw the same thing happen in 2011 when flooding [from cyclone Yasi] in Queensland cut supply and pushed coal prices up above $US300 a tonne.”
Not surprisingly, for the coal miners outside the effects of Cyclone Debbie, it's been a good week in the sharemarket, with Whitehaven Coal up 8% at one point in the last 24 hours.