Australia's torrential rains are driving up global coal prices, as flood damage to the resource-rich northeastern state of Queensland raises fresh questions about the storms' connections to global warming and climate patterns in the Asia-Pacific region.
Prices for export coal used to produce electricity and for making steel in Asia are hitting new highs, as Queensland's largest coal mines remain closed and railroad companies grapple with mudslides.
Australia produces nearly half of the world's exports of steelmaking coal, and most of that coal is heading to China, Japan and India. With the rain threatening to wash out Brisbane, the regional capital, economists are taking stock of growth projections for Asia's biggest energy importers. Meanwhile, financial analysts are digging into the potential impact on Queensland's miners, including multinationals BHP Billiton, Rio Tinto, Xstrata and Peabody Energy.
Moody's Investors Service projects that the closing of mines in Queensland and damaged rail lines could delay the delivery of 8 million to 15 million metric tons of coal to customers in Asia. Further, the price of metallurgical coal could eclipse record highs hit in 2008. Global prices for seaborne steel-making coal are approaching $300 a metric ton.
"The Queensland coal crisis is bad news for steelmakers worldwide, especially for those without supply contracts in place," said Moody's. "The current metallurgical coal price spikes could nearly double the cost of producing a ton of steel."
If the cost of producing steel can't be passed along to builders, that could take the wind out of steel companies fueling infrastructure expansions in Southeast Asia.
More rain is a bad forecast for steelmakers
Worse still is the potential impact on U.S. and European steelmakers that are starting to recover from the West's economic downturn. "For steelmakers, the most ominous news of all comes from weather forecasts, which predict even more rain for Queensland in the coming weeks," says the report.
Thermal coal burned at power plants is also seeing production disruptions, Moody's said, but that will have a smaller impact on global markets.
All of the major coal producers in Queensland have declared force majeure, which allows them to miss contract deliveries due to a natural disaster.
The coastal port cities, Mackay and Rockhampton, are 100 miles or more from Queensland's coal mines. In early December, as rainwaters had started the monthlong process of flooding mines and washing out rail lines, workers lined up before 1 p.m. at an easy-to-miss storefront depot in Mackay. They waited to load a company bus to the coal mines.
From there, workers would ship out to the sites and return home a day or two later. In short interviews with a ClimateWire reporter, miners said their bosses would keep them busy with maintenance if flooding and wastewater shut their mines.
An unusually strong La Niña event
The operation of coal and freight rails crisscrossing northeastern Australia is spotty. Coal shipments have slowed, and railroad companies are dealing with their own constraints. QR National, which owns major rails connecting the mines to ports, yesterday announced the closure of a line because of a landslide in the Toowoomba Range just west of Brisbane.
With the ground saturated, rivers are breaching their banks in the tiny inland mining communities. Some of the largest mines in the coal-fertile regions of central Queensland aren't producing. The Goonyella rail connecting those mines to the Dalrymple Bay and Hay Point coal ports along the coast has slowed. "Once this flooding recedes, an accurate assessment of repair requirements and recovery timeframes can be made," said QR National.
Meanwhile, the rail company's North Coast freight line is closed from Brisbane to Cairns, stretching from the southern to northern tips of Queensland. Grain is in short supply.
Meteorologists are also watching the events in Australia closely. La Niña is a periodic climate phenomenon that results from an ocean-atmospheric cooling effect.
Michelle L'Heureux, a meteorologist at the U.S. National Oceanic and Atmospheric Administration's Climate Prediction Center in Maryland, said Australia is experiencing an unusually strong La Niña event.
A buildup of moisture in the atmosphere is one result of the buildup of greenhouse gases in the atmosphere. Still, she noted that the Intergovernmental Panel on Climate Change (IPCC) in its latest report steered clear of any link between weather events associated with the cyclical El Niña (ocean warming) and La Niña (ocean cooling) climate patterns and global warming.
"I'm not willing to pin the Queensland rainfall on global warming. I don't think most scientists would go out and say that," she said. "But at the same time, there's a lot of moisture."