Reuters reported that spot coking coal prices have risen around 10% in a month and look set to move sharply higher as Asia's steel mills scour the globe for new suppliers to cover production lost to Australian floods.
More than two months of torrential rains in Australia's Queensland state, the world’s largest exporter of coal for steel making, have left collieries underwater, rail lines inoperable and coal ports running at a trickle if at all.
Spot prices for coking coal are at around USD 250 a tonne, more than 10% over the industry benchmark USD 225 a tonne free on board, Australian ports negotiated between BHP Billiton and Japanese steelmakers for the first quarter of 2011.
Pressure to find coal elsewhere is now expected to lift spot prices close to USD 300 a tonne in the next few weeks, a level last seen when Australian collieries flooded in 2008 and a boon to non Australian producers like Indonesia's PT Borneo Lumbung Energi and US based Consol Energy.
Mr Andrew Harrington sector analyst at Patersons Securities said that "Fully 90% of Queensland’s metallurgical coal sector is off line right now."
According to preliminary government figures, Australia's 159 million tonnes of coking coal exports in 2010 accounted for nearly two thirds of global shipments.
Steelmakers globally are bidding up prices for US exports of high grade coal. Coking coal is needed to produce steel from conventional blast furnaces. US metallurgical coal is among the world's best.
Mr Lo Ming Chung EVP of Taiwan based China Steel Corporation said that about 80% of his company's coking coal came from Australia, but it had now turned to the spot market since it could not source coal from Australia.
CSC's costs have raised some USD 10 million since the Australian floods, but it has made up all the lost supply from the spot market and is not thinking of cutting production.
In China, Australia's supply disruptions have not yet spilled over to the domestic market, with steel mills holding comfortable inventory levels after having replenished supplies in November and December.