Disruptions to the Queensland coal industry as a result of ex-tropical cyclone Debbie look set to persist for several weeks, with many key transportation links out of action as repairs take place.
And that means a large chunk of global seaborne coking supply will be absent from the markets, an outcome that is likely to push spot prices higher as a consequence.
Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank, explains:
Aurizon has provided repair time estimates for its coal railway infrastructure in Queensland following the aftermath of Cyclone Debbie. The company estimates it will take 5 weeks to repair its Goonyella rail line. The line transports 35-40% of global coking coal exports. Aurizon’s Blackwater railway, transporting 15-20% of cross-border coking coal, is only expected to be offline for a week. Meanwhile, the Moura (~2%) and Newlands (~1%) rail lines are expected to be offline for 2 and 2.5 weeks respectively.
Aurizon has flagged that it plans to divert some output from its Goonyella rail line through the ports of Abbot Point and Gladstone. The offset will be modest as re-routing coal through Gladstone will be challenging given the rail configuration. The repair estimates suggest that 13-17 million tonnes of seaborne coking coal supply (around 4-6% of global exports) and 2-5 million tonnes of seaborne thermal coal supply (around 0.2-0.5% of global exports) may be lost this year. Some of the lost volume will likely be mitigated by drawing down on port stockpiles and increased haulage rates through the remainder of 2017.
Jellinbah Group joined Yancoal in declaring ‘force majeure’ and we expect more companies will follow suit.
As a result, Dhar says that premium coking coal and PCI [pulverised coal injection] coal prices will likely push significantly higher in the coming weeks as shortage concerns intensify.
And it looks like that, after a somewhat delayed start, is already taking place.
Premium coking coal spot prices rose by 2.8% on Monday to $US162.5 a tonne (FOB). That gain has accelerated further in early trade on Tuesday, rising back above the $US170 a tonne level.