Australian floods push up coal price

21 January 2011

22 January 2011 | Angeline Albert

BHP Billiton has reported a 30 per cent drop in coal production between October and December last year due to flooding in Queensland in Australia.

In its half-year report, the mining firm said: “Queensland coal production was significantly affected by the persistent rain and flooding that impacted the Bowen Basin in the December 2010 half-year.”

The Bowen Basin in Queensland is the largest coal reserve in Australia and the region accounts for around 56 per cent of the world's exports of coking coal, an essential ingredient in steel manufacturing. The company reported a 24 per cent decline in the production of coking coal in the third quarter, which ended on 31 December.

The report said the heavy rainfall that persisted for much of the late last year “significantly restricted” coal removal. “When combined with disruption to external infrastructure, we expect an ongoing impact on production, sales and unit costs for the remainder of the 2011 financial year.”

But BHP Billiton added its coal sales benefited from a “healthy level of inventory that was held across our supply chain at the commencement of the quarter”.

Spot prices for coking coal having risen above $300 a tonne (£187) this week. Contracts signed before the floods priced the commodity at $225 (£140) a tonne, according to the Sydney Morning Herald.

“As a direct impact of the floods, coal prices have moved rapidly higher, with some estimates indicating that coking coal prices could triple in the short term,” said Australian bank Westpac’s chief economist Bill Evans in a statement.

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