Commodities | Jan 27 2011
By Chris Shaw
Given the widespread damage and disruptions caused by the recent floods in Queensland, ANZ Banking Group has updated its view on the coal sector given reports in the media indicating as much as 85% of coal supply from the state has been impacted by the disaster.
Reports imply 48 of the 57 coal mines in Queensland were impacted by the floods, but as Mark Pervan, the bank's head of commodity research notes, most of the heavy flooding was in the South Bowen Basin. Higher levels and increased pumping capacity has limited the flooding in general, while better mine planning means in some cases higher coal seams can still be accessed.
Given this, Pervan suggests the impact of the floods on the industry is not that severe, largely thanks to the better contingency planning put in place post the equally severe floods in 2008. In Pervan's view, the industry is in good stead for a sustained recovery in the June quarter, as most of the northern Bowen Basin is unaffected and as mines shift current operations to higher levels.
The major risk in Pervan's view relates to rail infrastructure. Here QR National ((QRN)) has been good with respect to updates, the latest indicating most of its infrastructure is being re-opened. There will be a reduction in rail volumes over the next three months as repairs are made, Pervan estimating this has the potential to cut total coal export volumes by 18 million tonnes. This is already factored into the bank's forecasts for the sector.
The rain has softened below rail land support, leading QR National to report train speeds will be reduced for the next three months to allow for drying and stronger support. This is expected to reduce the number of trains by half over the period.
Queensland coal rail lines are estimated to be currently operating at about 55% of total capacity, which implies annual volume movement of 132 million tonnes of coal. This would be 80 million tonnes lower than the bank's previous estimate for 2011 of 212 million tonnes. Assuming current capacity levels persist for three months, Pervan suggests rail movement will end up being 192 million tonnes, 20 million tonnes lower than 2010.
Pervan notes port operations were mainly unaffected by the floods, though the rail impact has reduced stockpiles. As examples, Pervan notes Dalrymple Bay is running about 400,000 tonnes of yard stockpiles compared to normal levels of around 1.2 million tonnes, while both Gladstone and Brisbane ports are dealing with low stocks at present.
Last week Newcastle spot thermal coal prices fell 4.0% to US$130.77 per tonne, which was the first weekly fall in eight weeks and comes on the back of a 24% rally from US$110 per tonne at the start of December.
Assuming there are no further flood events, Pervan expects prices will ease to the US$120 per tonne level in coming weeks, though any further downside should be limited given a slow recovery in the Bowen Basin is likely to keep thermal coal supply tight for much of this year.
