U.S. coal miner shares rallied on Monday as massive floods in Australia disrupted a big chunk of the world’s metallurgical coal supply, driving up prices and causing Asian importers to hunt for alternatives.
Floods in northeast Australia have brought most mining operations to a halt in Queensland, which produces the bulk of Australia’s steelmaking coal. Australia is the largest exporter of the grade, exporting about 125 million tonnes, with the United States a distant second at 33 million tonnes in 2009.
Steelmakers globally are feeling the effect and are bidding up prices for U.S. exports of high-grade coal that is a key ingredient for producing steel. U.S. metallurgical coal is among the world’s best, analysts said.
“Japanese, Korean and Taiwanese mills have started inquiring about near term U.S. coal at market prices higher than the pattern deal for the first quarter,” said coal trader Frank Kolojeski at Export Commodities International Inc.
BHP (BHP.AX: Quote) and Japanese steelmakers agreed on $225 per metric tonne ($205 per U.S. short ton) for the first quarter of 2011 but analysts say $300 and above, last reached in 2008 when Australia suffered flood problems, is not out of the question.
All U.S. coal company stocks rose, with Consol Energy (CNX.N: Quote) leading the pack with a jump of 5 percent.
Inside Coal industry newsletter said met coal prices in Australia had risen past $240 a metric tonne before Christmas, and analysts said the price likely is higher than that now.
“Spot coal likely is trading at a significant premium,” said Brian Gamble, coal analyst at Simmons & Co in Houston.
Lower-grade thermal coal, used to make steam in power plants, also is rising but the impact on utilities has been less pronounced, analysts said.
U.S. coking coal exports have increased this year from 35.4 million in the 12 months through January 2010 to 49.8 million tons in the 12 months through October 2010, but infrastructure constraints could limit further immediate sales to the steel mills in Japan, South Korea and China.
One factor that could boost prices for U.S. exports is port capacity, which at about 130 million short tons is very small compared to the size of the 1.1-billion-tons-per year U.S. coal industry and is nearly full already, analysts said.
But the scramble for alternatives could be even more intense now that China is important about 10 times more than it was in 2008, said Kolojeski.
“The volatility may well be greater now,” Kolojeski said.
The effect on steel prices could be muted by the fact that much of the steel used, particularly in the United States, is recycled and does not require coal to manufacture, said analyst Michelle Applebaum of Steel Market Intelligence in Chicago.
In afternoon trading on the New York Stock Exchange, Consol Energy (CNX.N: Quote) stock was up 5.4 percent at $51.39 and Alpha Natural Resources was up 3.4 percent higher at $62.04. Arch Coal (ACI.N: Quote) and Massey Energy (MEE.N: Quote) were up over 2 percent and Peabody Energy (BTU.N: Quote) rose 1.4 percent.
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