Coal for Steelmaking May Exceed $300 After Australian Floods, Daiwa Says

Steelmaking coal contract prices may rise to more than $300 a metric ton after the worst floods in 50 years disrupted output from producers including BHP Billiton Ltd. and Rio Tinto Group in Australia’s Queensland state, according to Daiwa Capital Markets.

Flooding may cut as much as 10 million tons of coking coal from the market if disruptions to mining last six weeks, David Brennan, a Melbourne-based analyst at Daiwa, wrote in a research note yesterday.

BHP, Rio, Macarthur Coal Ltd. and Anglo American Plc are among producers that have declared force majeure, a legal clause invoked by companies when they can’t meet obligations because of circumstances beyond their control. Record rainfall has spread floods across an area the size of France and Germany, forcing the evacuation of towns, closing mines and spoiling crops.

Steelmakers were confronted with a threefold increase in annual contract prices to about $300 a ton in 2008 after rains and floods affected mining in Queensland. Mills agreed to pay $225 a ton for hard coking coal under a three-month accord starting Jan. 1 this year, Bank of America Merrill Lynch analysts wrote in a Dec. 21 report.

Flooding has cut output of steelmaking coal by 3 million tons and of the thermal variety burned at power-stations by 1.5 million tons, according to estimates from Colin Hamilton, an analyst at Macquarie Group Ltd. in London.

To contact the reporters on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

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