Wet weather threatens Australian coal exports

The Australian Bureau of Meteorology (BoM) expects a wetter-than-usual September-November, with a 50pc chance of a high-rainfall La Nina weather pattern developing that can quickly reverse the oversupply in the seaborne coking coal market.

Disruptions from heavy rain and cyclonic conditions to Queensland coal shipments have put significant upward pressure on metallurgical coal prices, particularly high-grade premium hard coking coal prices. Flooding in the Hunter Valley and storms around the port of Newcastle in New South Wales (NSW) can affect the availability of thermal coal.

La-Nina-related flooding in early 2011 helped push premium hard low-vol coking coal prices to record highs of over $330/t, and the infrastructure damage caused by Cyclone Debbie in March 2017 saw prices spike above $290/t. Coal miners are struggling with a hard coking coal price of $105/t as assessed by Argus yesterday. The 2011-12 La Nina helped keep high-grade thermal coal prices above $100/t for NAR 6,000 kcal/kg until May 2012, compared with yesterday's price of $48.54/t.

At this stage the BoM is still only indicating that the chance of a La Nina weather event is 50pc for the wet season that runs from November-April in Queensland, but this is double the average likelihood. There is an 80pc chance of above-average rainfall in September-November in the coal fields of both Queensland and NSW, according to the bureau.

A wetter-than-normal wet season, particularly if it is combined with cyclonic activity around the Queensland coal fields and associated ports, may restrict exports of Australian coal, just as Asia-Pacific governments look to stimulate their economies through infrastructure projects that will require additional coal.

Australian coal mining firms are hoping to be able to ride through the current period of narrow or negative margins with the hope that prices will pick up later in the year as demand returns. They may also be hoping for rain, particularly if it affects infrastructure providers and take-or-pay contracts are adjusted accordingly. Australian coal mining firms are locked into volume contracts for port and rail, but these can be adjusted in the case of extreme weather events.

The BoM will release its cyclone outlook for 2020-21 in the second week of October.

The last La Nina event in Australia ended in March 2018. It was a short season and did not impact the coal-producing regions in eastern Australia as in previous La Nina events.

By Jo Clarke