http://www.theaustralian.com.au/business/markets/coal-ore-hikes-m...

http://www.theaustralian.com.au/business/markets/coal-ore-hikes-may-offset-falls/story-e6frg926-1225980699307

Coal, ore hikes may offset falls

* David Uren, Economics
* From: The Australian
* January 03, 2011 12:00AM

PRICES of Australia's coal and iron ore exports are soaring as Asian steel mills judge they will remain in short supply even after floods have eased and the cyclone season has passed.

The Macquarie Group yesterday said the floods could create such a severe shortage of suitable-quality coal it could trigger a worldwide shortage of steel.

The flood-affected region in Queensland is the source of half the world's supply of coking coal for steelmaking.

But with strong demand from Asian mills, the price hikes may largely offset the fall in shipments in Australia's export revenue.

Although the rail operator QR National has succeeded in getting the biggest rail line to Dalrymple Bay, 40km south of Mackay, back into action after a derailment, there are concerns of long-term damage from the floods to the coal rail line from Moura, 190km east to the port of Gladstone.

Macquarie said the spot price for coking coal was heading from a current level of $US246 ($240) towards $US300 a tonne, and this may be reflected in the next round of quarterly export contracts. The current contract price is $US225.

"There is a strong chance that 2011 could prove worse than 2008 when seven to eight million tonnes of metallurgical coal were lost due to flooding in Queensland," the group said.

At the end of last week, 73 per cent of Queensland's coal suppliers had declared "force majeur", meaning they were unable to ship because of events beyond their control.

The Queensland budget is under pressure because of the floods.

State Treasurer Andrew Fraser said at the weekend that royalty revenues would suffer because of flood damage to mining, while the state also faced new costs to rebuild damaged infrastructure.

The state government has delayed its usual mid-year review of the budget, which had been expected in the next few weeks, so the effect of the flood can be factored in.

Iron-ore prices surged to an eight-month peak of $US170 a tonne on Friday as markets assessed the chance of cyclone damage to the northwest iron-ore province. Ships were cleared from Port Hedland and Dampier harbours, but the cyclone did not make land.

It is traditionally a period of peak iron-ore demand as Chinese steel mills stock up for Chinese New Year. India, another important iron-ore supplier, has withdrawn from the market following export bans imposed by state governments to ensure their local steel industries are supplied.

Although floodwaters are easing in some of the key mining areas, the Macquarie Group said it expected further substantial disruption to shipments with more above-average rainfall predicted.

It said there were concerns a key bridge over the Dawson River had been damaged, threatening the Moura rail line, which ships 18 million tonnes of coal a year.

A spokesman for QR National said the company was not aware of these reports, but said all bridges and lines would be checked after the floodwaters subsided.

He said the Moura line would resume limited shipments today, although the larger Blackwater line, which ships 66 million tonnes a year, remains closed.