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Australian storm clouds could provide silver lining for Russian coal exporters

Australian storm clouds could provide silver lining for Russian coal exporters
An extreme climate event has reached the capital of the Australian state of Queensland, Brisbane, with extreme rainfall and tsunami-like flooding in the huge territory threatening supply contracts of coking coal to Asia.

­Severe flooding in eastern Australia has shut 40 coal mines in Queensland, and damaged crops such as wheat, mangoes and sugar cane. The estimated damages will cost the Australian government around US$5 billion including the price of rebuilding homes, businesses and infrastructure.

Australia is the world’s leading coking coal exporter and the recent weather disaster has unexpectedly forced major actions reported by world industry players BHP Billiton, Rio Tinto, Peabody Energy and Aquila Resources.

The Australian floods will have a significant impact on many world industries due to a shortfall of and stagnation in coal supplies from Australia, believes Airat Khalikov, an analyst with Veles Capital

“Asia is the first in a line to be hit by an Australian coal-supply shortfall due to flooding. The Australian exporting port of Gladstone has reserves remaining of 500.000 tonnes, while its standard output is 6 million tonnes,” he says.

Deutsche Bank analysts estimated coal market output surges of up to 18 million tonnes, with further prices to skyrocket

“The world's coking coal prices have jumped by 12.4% to $253 per tonne. In the 2 quarter, the price could reach $300 per tonne.”

According to Wood Mackenzie data, coking coal prices may raise to $400 per tonne from the current $265 per tonne. The Commonwealth Bank of Australia considers that the average price of Australian coking coal will increase by 30% in Q2 2011 compared to the previous quarter market price.

Rising prices and the suspension of production could lead to more than two months of supply shortage in the world says Airat Khalikov analyst Veles Capital

“Current Flooding may lead to a 5% reduction in total supply of coking coal in the world. The shortage of coal supplies from Australia may continue for two months,” Khalikov says.

Core Australian coal importers Japan, India and China, with 30%, 15% and 15% of import volumes respectively, have already arranged supporting imports from Russia, Canada and USA.

Russian exporters may see advantages for their coal export and companies’ shares growth on the back of consistent demand from Asia and dwindling supply from Australia, according to Airat Khalikov.

”A significant price increase for coking coal will lead to a growth of Russian mining and exporting companies’ shares, namely Raspadskaya and Mechel. However, in my opinion, these companies will not be able to increase export volumes to compensate for the global shortage of coal, because at that time, exports of coking coal is determined solely by the bandwidth of Far East ports,”
he says.