FLOODING in Queensland's Bowen Basin has resulted in a "supply apocalypse'' for coking coal, with contract prices likely to hit $US300 per tonne - three times the price in 2007 - as steel mills scramble for the key ingredient.
Investment firm Merrill Lynch estimates flooding in the Bowen Basin has taken about 15 million tonnes of coking coal out of the market, as infrastructure limitations restricts the ability of producers to make up the lost output.
"There is now an obvious scramble for supply with industry sources confirming that Asian steel mills are begging for tonnes at close to any cost,'' Merrill Lynch said in a client note today.
"Under current market conditions, spot prices reflect the 'hysteria' of the supply shortage and therefore spot appears a reasonable guide for contract settlement.''
Merrill Lynch expects "peak coking coal prices'' for the 2008 Japanese financial year, starting April 1, with a forecast premium hard coking coal price of $US300 per tonne.
The consensus for 2008 contract prices had been $US197 per tonne, almost $US100 higher than the 2007 contract price of $US98 per tonne.
The Bowen Basin is the world's single largest resource of exported high quality coking coal, with flooding resulting in a number of companies declaring force majeure on coal deliveries.
Xstrata Plc, Rio Tinto Ltd subsidiary Coal & Allied Ltd, Ensham, Macarthur Coal, Wesfarmers Ltd and BMA, Queensland's top coking coal exporter, are among those that have declared force majeure.
BMA is a 50/50 joint venture between BHP Billiton Ltd and Japanese giant Mitsubishi Development Pty Ltd.
Macarthur Coal chief executive Nicole Hollows said last week its two operations in the Bowen Basin remained underwater, with the company forecasting about six weeks lost production.
Tight supply has been exacerbated by China withdrawing from coking coal exports, as internal demand soars and coke stockpiles decline to historically low levels,'' Merril Lynch said.
Brokerage Goldman Sachs JBWere said the supply squeeze has prompted one Asian steel mill to acquire coking coal on the spot market at $US400 per tonne.
"Feedback from our Goldman Sachs colleagues in Asia suggests a large Asian mill has contracted to buy spot coking coal at just over US$400/t,'' Goldman Sachs said in a March 6 client note.
Brokerage UBS estimated in a client note earlier this week prices for coking coal and thermal coal, used as fuel for power stations, may rise by 30 per cent more than forecast this year after the flooding and severe snowstorms in China, which have restricted supply.
UBS said the thermal coal price may increase to $US130 per tonne for the 2008 Japanese financial year, up on the previous forecast of $US100 per tonne.
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