With severe floods in Australia, coal production has been disrupted and coal prices have risen. Global steel production may also be constrained, resulting in a possible increase in steel prices in some regions.
Queensland is the world’s largest seaborne coal export base. The recent heavy rains in the northeastern part of the state have resulted in the suspension of production of dozens of coal mines and the closure of coal transportation railroads and highways. In recent weeks, Australia’s coal mining company Macarthur Coal Ltd. in Queensland and Peabody Energy Corp. in St. Louis, as well as Rio Tinto, BHP Billiton, and Brazil’s Vale have both claimed that "Because of force majeure, they could not fulfill their contractual responsibilities and could not transport coal under special circumstances."
According to Curt Woodworth, a New York analyst at Macquarie Capital, a coal mine in Queensland, Australia, the annual production capacity of about 98 million tons of steelmaking coal is affected by force majeure, equivalent to 73% of normal coal exports from Queensland. %. This accounts for about 37% of the global annual seaborne coal supply used by steel manufacturers.
Analysts said that the price of steelmaking coal in the spot market has risen to $250 per metric ton, an increase of 10%. Jeremy Sussman, analyst at Brean Murray, Carret & Co., said that if infrastructure problems remain unresolved, prices will clearly continue to rise.
Integrated iron and steel producers that are making steel by melting raw materials such as iron ore and coal have been affected by the rise in iron ore prices. Due to relatively weak demand, these producers may not be able to increase steel prices to offset rising raw material costs. Steel companies such as Nucor Corp. in the United States smelt steel instead of coal or iron ore, and they will not be affected.
Michelle Applebaum, a steel analyst at steel research company MARInc., said that affected by these factors, domestic and foreign electric arc furnace steel mills may benefit from coal companies, because they will not be affected at all. The impact of coal price increases.
Some steel companies such as US Steel Corp. may benefit indirectly because they rely on North American steelmaking coal. ArcelorMittal, the world's largest steel producer, does not import steelmaking coal from Australia. Therefore, at least in the short-term, it may not feel the chain reaction caused by rising steel costs.
The shortage of steelmaking coal supplies is pushing up the price of hard coal coke, the top steelmaking coal. Before the floods hit Australia, the price of hard coking coal had reached 225 US dollars per metric ton. When the next batch of quarterly contracts is settled in the next few weeks, hard coke is expected to rise to $300 per metric ton.
Analysts said that the increase in steelmaking coal prices and the shortage of supply may allow steel mills to reduce their output, and thus steel export prices may increase. As of Tuesday, part of the floods in Queensland began to subside, but coal mining companies have not cancelled the declaration of force majeure.
In addition, although Australia's thermal coal supply accounts for only about 3% of global thermal coal, Australia’s steelmaking coal supply is disrupted and it is expected to push up the price of thermal coal used by utility companies to a certain extent. In recent weeks, the weather in Europe and other parts of the world has been extremely cold, so the demand for thermal coal for power generation has also increased.
Experts in the coal industry say that it is difficult for Australian coal mining companies to make up for the losses caused by floods, because the production capacity is already approaching the limit, and even under normal circumstances, it is impossible to increase production capacity to make up for losses.