Queensland supply disruptions reverberate across US coal markets

Washington (Platts)--5Jan2011/601 am EST/1101 GMT

Rain and severe flooding in Queensland, Australia, have driven international seaborne metallurgical and thermal coal prices higher, boosting US prices in an already tight global marketplace.

In an investors note released Tuesday, Dahlman Rose & Co. raised estimates for 2011 and 2012 Central Appalachian and Northern Appalachian coal prices to $72/st and $80/st, respectively, up from $70/st and $75/st.

On the expectation of continued international demand, analysts at Dahlman simultaneously boosted 2011 and 2012 hard coking coal estimates to $230/mt and $220/mt, respectively, up from $210/mt and $200/mt.

UBS Investment Research wrote Monday, "exporting trends among US producers indicate a demand for high Btu thermal coal to be sold as high-vol met coal."

Supply disruptions in Australia follow recent production and export issues in both Colombia and South Africa.

"Despite the one-time nature of these events," analysts at Dahlman wrote, "we believe the current price rise foreshadows an overall tighter supply-demand picture as the international economic recovery continues to gain traction."

Rainfall in Australia has forced numerous producers to declare force majeure. The list includes: Peabody Energy, Anglo American Metallurgical Coal, Aquila Resources, BHP Billiton, Cockatoo Coal, Ensham Resources, Jellinbah Group, Macarthur Coal, Rio Tinto Coal Australia, Vale, Wesfarmers and Xstrata.

In Monday's US over-the-counter coal session, Central Appalachian thermal prices surged higher. Front-month February 2011 Platts assessed CAPP barge gained $4.75/st to $83.25/st, while front-month CAPP rail (CSX) gained $3.90/st to $77.90/st, both prices rising from the prior full-day session.

One US coal trader attributed Monday's price surge as a reflection of international events, and a tightening of thermal markets in both Europe and Asia, both directly attributable to weather in Australia.

According a coal market source, CAPP barge, and CAPP rail prices have pulled back slightly in early trade Tuesday, moving lower by $1/st in the front-half of the forward curve.

Despite the acute supply pressures in Asia, Dahlman believes, for US coal producers, "the most relevant thermal coal price move has been the increase in the thermal coal contract for delivery to Northern Europe." With European delivered CIF ARA prices appreciating faster than CAPP coal prices, US thermal coal prices are "in the money for shipment across the Atlantic."

At current spot prices, Dahlman's data puts CAPP barge at a European delivered cost of $5.16/MMBtu, below the Richards Bay cost of $5.39/MMBtu and the CIF ARA cost of $5.20/MMBtu.

In the short-term, coal exporters from Indonesia are projected to reap the largest benefit from supply disruption in Queensland. Analysts at Bank of America/Merrill Lynch reported Indonesian FOB thermal prices hit $130/mt at the end of 2010, "driven by heavy rainfall."

While the length of supply disruptions in Australia remains difficult to gage, Bank of America analysts wrote "we think a recovery will take longer than a month as we understand the rainfall is continuing."

Queensland produces 55 million mt of thermal coal and 140 million mt of met coal yearly, representing approximately 37% of Australia's thermal production, and 88% of its met production, according to Bank of America data.

--John P. Miller, john_p_miller@platts.com

To subscribe or visit go to:  http://www.platts.com