State's coal supply issues may force up prices worldwide
THE threat of a blockage in Queensland's coal supply routes could deliver a long-desired improvement in world prices, as international demand goes unmet.
The onslaught of ex-tropical cyclone Oswald forced mining giants Xstrata and Rio Tinto to act on "force majeure" clauses in their supply contracts - an escape clause allowing a business to avoid punishment if it breaches the terms.
Historically, BHP Billiton relied on these when crippled by industrial action last year.
Before that, the widespread breakdown of coal supplies in 2011 sent the world price for steel-making coal beyond $300 a tonne.
That figure almost halved in 2012 as supply returned and demand waned.
HSBC chief economist Paul Bloxham would not give a figure, but predicted higher prices for energy and steel-making coal would help offset damage costs faced by the big miners.
"When you assess the overall impacts of the floods on the coal (industry), even though we may be producing less coal, we're likely to get a higher price for what we produce," Mr Bloxham said.
China's demand for steel continues, as does Japan's need for coal as it steers the country away from nuclear power.
Aurizon - formerly QR National - believes its Blackwater and Moura rail lines connecting to the Port of Gladstone will be operating by the end of next week, although as of Tuesday parts remained underwater.
Its lines further north - the Newlands and Goonyella systems - are already back in use.
Queensland Resource Council chief executive Michael Roche said coal prices may increase if access to the Gladstone port remained blocked.
"Coal prices are continuing their slow climb back from 2012 but it is unlikely that we will see a return to the giddy heights of 2011 flood-affected prices," Mr Roche said.
Anglo American would not say if it would declare a force majeure, relying on a holding statement admitting some mines had flooding and transport issues but these were now easing.
BHP said it had not announced a force majeure at any of its seven coal mines.
A force what?
- A "force majeure", or superior force in English, allows a contract holder some wriggle room if faced with an "act of God".
- This can include flooding, fire, war, volcanic eruption or even industrial action.
- Although definitions differ, to qualify as a force majeure the problem must usually be unpredictable, unavoidable and not caused by the company.
- For coal miners, exporting relies on pulling material from the ground, moving it by train, loading a ship then dispatching that ship to the buyer. In cases of flooding, some or all of these steps are affected.
- Once recovered, the company must make up the shortfall supply to those buyers at the original price, although later shipments might then be sold at a higher price.