Australia floods causing long-term damage

A city street at sunrise is shown covered in flood waters on January 7, 2011 in Rockhampton, Australia. Floodwaters peaked at 9.2 metres two days ago in the central Queensland city just falling short of the predicted peak of 9.4 metres. (GETTY IMAGES)

Australia's  flood-stricken coal industry may be disrupted for months after  key rail and road links were washed away, while some infrastructure could take years to repair, authorities said on  Friday.   

The floods have swamped mines in Queensland state, paralysing operations that produce 35 percent of Australia's  estimated 259 million tonnes of exportable coal. Australia  accounts for two-thirds of global exports of coking-coal,  needed to make steel.  

"There are some aspects of the rebuilding of  infrastructure that will take, potentially, years,"  Major-General Mick Slater, chief of the flood recovery  operation in Queensland, told a news conference in flood-hit  Rockhampton town. 

"We still don't know what it looks like underwater. I know  that major roads, rail lines and bridges are all damaged." 

A snap survey by Reuters showed the median expectation  among analysts was that recovery in coal output to pre-flood  levels would take about three months.

Commodities form a large part of Australia's $1 trillion  economy and coal is the top export earner, forecast before the floods to earn nearly $50 billion in revenue in fiscal 2011.  

"Until weather conditions improve, the situation could  deteriorate further. Australia's exports will likely take at  least a couple of months to normalise," Barclays Capital said  in its daily commodities briefing. 

The floods have affected an area the size of France and  Germany combined. Three people have been killed and at least  40 towns are isolated or partially under water after the  state's worst floods in 50 years. Damage has been estimated at $5 billion. 

A muddy inland sea has stranded some of Australia's best  beef cattle on tiny islands of high ground, destroyed wheat  and sugar crops, and the wet season has only just begun. 

Floodwaters were receding on Friday in some areas only to  inundate new ones. Authorities said even once floods reached a  peak, water would not significantly recede for almost a week,  leaving the Capricorn highway, which runs through the main  coal region, cut off. 

The biggest coal port, Dalrymple, is running at  near-normal export levels of around 200,000 tonnes a day  despite the floods, but authorities are concerned they are  simply drawing down inventories to meet shipments that may  soon run out. 

"We really have no idea at the moment what's happening  with mine production. If we can't get it in, we can't ship it  out," said Dalyrmple spokesman Greg Smith. 

Gladstone port, also with a daily export capacity rate of  200,000 tonnes, is closed. 

Queensland's mines minister and analysts say it will be  months until mines in Australia's biggest coking coal area,  the Bowen Basin, are fully operational. 

"It's highly likely to be worse than the major floods of  2008, which severely hampered mine operations for two to three  months and reduced Queensland coal exports by 9.5 percent or  3.5 million tonnes in the first quarter of 2008," Mark Pervan,  a commodities analyst with Australia & New Zealand Bank (ANZ),  said in a report.  

Asian steel-makers who buy the bulk of Australia's coal  have been forced to look elsewhere. [ID:nTOE70502T] 

Park Cheon-tark of Hyundai Steel said the  company had bought coal from Russia, Canada, the United States  and China, while asking long-term contract sellers to ship  earlier than previously agreed. 

"With these inventories, we have no problem running steel  plants through mid-April," Park said.  

London-listed Anglo American , one of the nation's   top four miners of steel-making coal, and smaller Australian  rival Cockatoo Coal Ltd have both said it could take  some weeks to pump water out of their mines. 

Anglo's major rivals, Rio Tinto  , Xstrata    and BHP Billiton  , have also been hit   by the floods, and all have made force majeure declarations,  which temporarily release miners from delivery obligations. 

Estimates vary widely on how much capacity has been  affected by declarations of force majeure. 

UBS puts the figure under force majeure at between 45  million and 50 million tonnes -- about 20 per cent of  Australia's coal exports in 2009, weighted more heavily toward  coking coal. 

Barclays Capital estimates 120 million tonnes of annual  coal production capacity are under force majeure, with coking  coal mines bearing the brunt. 

Australian stock market operator ASX Ltd made clear on  Friday it expected miners and other flood-affected firms to  make prompt disclosures about the impact on their operations.  So far, only a few miners have issued detailed updates. 

"Certainly if we think a company might need some  prompting, we may well put a call into them," an ASX  spokeswoman said, adding she was not allowed to comment on  individual companies. 

Analysts expect steel coals prices to rise as much as a  third to $300 a tonne in the aftermath of the floods, pushing  thermal coal prices higher in the process. 

ANZ on Friday lifted its thermal coal spot price forecast by 16 per cent to $140 a tonne for the first quarter and  premium hard coking coal contract prices by 19.5 per cent to $275 tonne in the second quarter. 

QR National , the main coal carrier in the Bowen  Basin, said on Friday a major rail link would be under water  "well into next week" and assessment of rail damage was being  hindered by floodwaters. 

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