Australian rains prompt coal force majeures

Heavy rains in Queensland have prompted Rio Tinto and Xstrata to declare force majeures on coking and thermal coal exports this week.

Heavy rains in Australia’s eastern Queensland state have caused two major coking and thermal coal producers, Rio Tinto and Xstrata, to declare force majeure on exports this week after a rail haul line was shut last week due to flooding.

Torrential rains and flooding in the state, which produces about half of the world’s coking coal, used for making steel, have cut rail haulage lines and other infrastructure and shut mines and ports handling both coking and thermal coals.

Aurizon Holdings, which owns the rail lines that connect many of Queensland’s mines with export ports, has had two major rail haulage lines shut since last week due to flooding, but expects them back online next week.

The wet weather is still a long way from causing the level of havoc seen in 2011, when many mines were inundated with water and took months to come back to full production, coal industry experts said.

“Export losses to date are less than one million tonnes of metallurgical coal products – easily recoverable during the course of 2013,” UBS analyst Tom Price said.

UBS estimates that around 10 million tonnes of coal production was lost as a result of the 2011 floods.

Both Rio Tinto and Xstrata said their force majeures were due to problems with the rail lines rather than with operations at the mine sites.

The force majeure declarations made by Xstrata as a result of flood damage to the rail system relate to thermal coal.

Force majeure is a legal clause relieving companies of immediate supply obligations to honour sales contracts due to circumstances beyond their control.

Only one of Rio’s mines, Kestrel, which produces around four million tonnes of coking and thermal coal per year, is affected by the rail outage, the company said. Xstrata did not specify how many of its mines were affected by the outage.

Some analysts warned that the cyclone season, which begins on Nov. 1 and ends on April 30, could still disrupt the coal industry.

“Any deterioration in weather conditions in coming weeks may prompt a cut to Australia’s supply forecasts,” Price said.

UBS’ current forecast for Australia’s coking coal exports, one of the country’s top export earners, is 151 million tonnes in 2013.

Torrential rains and flooding in 2011 caused several miners to declare force majeure on exports and sent coking coal prices to record highs near $350 per tonne.

Several major coal producers including BHP Billiton, Anglo American and Peabody Energy, also have operations in the area, but have not declared force majeures as a result of the rains.

(Reporting by James Regan in SYDNEY and Rebekah Kebede in PERTH; Editing by Ed Davies and Tom Hogue)


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