La Nina to weigh on Australian coal, LNG exports

Australia's Bureau of Meteorology has declared that a La Nina event has developed in the Pacific Ocean, which is likely to bring more heavy rain to coal- and LNG-producing regions in Queensland and New South Wales (NSW) and increases the chances of tropical cyclones that disrupt exports.

La Nina is most likely to impact Queensland, where cyclones are much more prevalent than NSW. It typically also results in an earlier start to the November-April wet season in Queensland, which can mean earlier disruptions caused by flooding.

Queensland is a major supplier of high-grade coking coal and LNG to the seaborne market, on top of supplying thermal and PCI grade metallurgical coal. NSW, which supplies more thermal coal and semi-soft coking coal, could also see disruptions from flooding at mine sites and on railways. Conversely, there is likely to be less impact from bushfires this summer, with fuel loads reduced by last year's terrible season and more rain predicted this year.

The last major La Nina period was in 2010-12, when flooding in late 2010 and early 2011 caused several coal mining firms to declare force majeure in early December, which stayed in place into February. The effect was most pronounced in hard and semi-soft coking coal exports but thermal coal export growth also slowed over the period, before rebounding strongly in 2012-13.

Economic slowdowns associated with the Covid-19 pandemic have dampened demand for LNG, as well as thermal and semi-soft coking coals, with some mines cutting production in response. This means there is more capacity to increase production to cover any shortfalls caused by flooding at specific sites this wet season. There is less flexibility in high-grade hard coking coals.

Significant flooding that affects rail or port systems along the east coast of Australia can lead to large spikes in coal prices. Premium hard coking coal prices doubled to above $300/t fob Australia after Cyclone Debbie flooded four rail networks with a combined 137mn t/yr of coking coal capacity in Queensland in late March 2017.

Argus last assessed the premium hard low-vol coking coal price at $135.75/t fob Australia yesterday, up from a recent low of $105/t on 11 August but down from around $160/t in February. PCI and semi-soft coking coal prices have been at around $70/t fob Australia since late April, down from over $100/t in February.

Argus assessed the high-grade thermal coal price at $53.29/t fob Newcastle for NAR 6,000 kcal/kg on 29 September, up from a low of $46.18/t on 8 September. It assessed the lower-grade thermal coal price at $41.30/t for NAR 5,500 kcal/kg, up from $35.04/t, in the same comparison.

By Jo Clarke