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Australian rail transport disruptions expected to push met coal prices higher


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Australian rail transport disruptions expected to push met coal prices higher

Analysts expect the impact of tropical cyclone Debbie to drive metallurgical coal prices higher as flooding is expected to disrupt rail transportation between Australian mines and ports for more than a month.

"We can expect severe congestion on the lines to keep pressure on the export markets," FBR & Co. analyst Lucas Pipes wrote in an April 3 report. "Naturally, with the world's largest met coal region unable to export anywhere near full capacity, the met price has increased. ... We believe that these events raise the probability of a [Q2'17] benchmark settlement above $175/[tonne]. We believe a settlement may still be negotiated over the coming weeks."

The storm made landfall March 28 and left widespread flooding in its wake as it soaked Queensland and New South Wales.

Several coal mining companies had suspended mining ahead of the storm, but some companies have announced they have resumed operations.

Peabody Energy Corp. said in an April 3 press release that while it has resumed operations at its mines, it expects rail traffic that carries coal from mine to port to be impeded as the region recovers from storm damage.

Citing the announcement by rail transport provider Aurizon that the Goonyella system, which provides service from the company's Bowen Basin mines to the Dalrymple Bay and Hay Point Coal terminals, could take five weeks to recover, the company said, "It is still too early to assess impacts on [the company's] volume and results, as well as any effects on second quarter price negotiations with metallurgical coal customers."

Pipes wrote in an April 3 report that the railway transports roughly 65% of total Queensland metallurgical coal exports.

"The disruption of the rail systems could drastically reduce Australia's met [coal] exports ... with potential losses of 15-20 [million tonnes] of supply," Pipes wrote. "We believe that this bodes well for domestic or any non-Australian met coal producer as Queensland is the largest export basin of met coal basin in the world."

Pipes said the damage from the storm falls short of the worst case scenario he outlined in a March 27 report, when he wrote that Australia lost an estimated 35 million tonnes of exports on a calendar year basis in 2010 and 2011 as flooding kept miners unable to restart production for months, which drove prices to over $300/tonne.