Cyclone damage pushes coal prices higher, BHP declares force majeure

The cost of coal used in steel-making in China has shot up nearly 9 per cent on expectations supply will be crimped in the wake of a cyclone that struck Australia’s north-east coast last week.

The futures price for one tonne of coking coal on China’s Dalian Commodity Exchange climbed as much as 8.9 per cent to Rmb1,323.5 on Wednesday after returning from a two-day market holiday on the mainland. It had closed virtually flat ahead of the break on Friday.

The price for thermal coal was also enjoying a post-holiday fillip, albeit less so, rising as much as 1.9 per cent to Rmb645 per metric tonne on the Zhengzhou Commodity Exchange.

BHP Billiton is reported to have declared force majeure for all coal products from its joint venture projects with Mitsubishi (BMA) and Mitsui (BMC). The move is in response to damage sustained by the rail network that ships coal from the projects in northern Queensland, which was hit last week by Cyclone Debbie.

Shares in the miner were up 2.8 per cent in Sydney on Wednesday.

The BHP Billiton Mitsubishi Alliance, a 50-50 JV, is Australia’s largest producer of seaborne coking coal, while BHP Billiton Mitsui Coal is an 80-20 JV.

Aurizon, the rail freight company that shifts coal for the likes of BHP and its peers, said on Monday damage to its network could mean rail corridor outages of between one to five weeks.

Analysts at UBS estimated this could mean about 15m tonnes, or 5 per cent, of the seaborne coking coal supply could be eliminated from coal markets, and it was “possible” this could drive prices for the commodity about $100 higher from its current spot price of around $155 per tonne.