Coal prices jump, set new high following disruption in Australia

Coal prices experienced a sharp spike in the wake of the deadly Cyclone Debbie, which has had significant impact on the mining industry in Queensland. Chinese metallurgical futures climbed by more than 7 percent to reach $255 a tonne on Wednesday. This sets the highest recorded level for the prices since December.

Singapore-listed futures for Australian premium coking coal also saw a substantial increase. Over the last three days, the mineral, a vital ingredient in steelmaking, has upped by 68 percent to settle at $297 a tonne. Similar trend was also noticed in European coal futures. The API2 2018 contract enhanced by $0.90 to $67.25 a tonne. With this, it reached its highest level since March 2.

Cyclone Debbie, which struck parts of Australia last week, has affected coal mines operated BHP Billiton and Glencore PLC. The catastrophe has also prompted several producers to declare force majeure.

Repair work at Aurizon Holdings’ rail line network, which connects mines to ports in Queensland, could last up to weeks, the company said. The state supplies more than 50 percent of the global seaborne coking coal. One of the four major lines responsible for transporting coal to ports along the Queensland coast is expected to be operational by next week.

As much as 15 million tonnes of coking coal exports have been lost in the wake of the severe weather. In comparison, 25 million tonnes of the mineral was lost when Cyclone Yasi struck in 2011.

ANZ Banking Group commodity analyst Daniel Hynes forecasts an increase in North American coking coal exports following Cyclone Debbie – similar to the hike of 13 million tonnes following Cyclone Yasi. "The only difference this time is that the impact will be contained within a 5-6 week window," Hynes said, according to Wednesday’s research note. "Therefore, we expect prices to surge well above $200 a tonne in coming weeks as buyers become increasingly desperate."

Last week saw shares in NSW operating Whitehaven Coal, operating in New South Wales, jumped by 20 percent. Meanwhile, shares in South32, which also operates in NSW, have increase in excess of 10 percent.

According to traders, while the disruption caused following the cyclone has had significant impact on coking coal prices, the thermal market has suffered a lot more. The annual maintenance of China Railway Corp’s line, responsible for transporting coal to the Qinhuangdao port, started this month – which could also contribute to the increase in prices, traders added.