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Coal Prices May Rise as Australian Rain Disrupt Output

Coal prices may rise after flooding and rainfall in Australia, the world’s biggest exporter of the commodity, disrupted production from mines in Queensland owned by companies including Rio Tinto Group and Macarthur Coal Ltd.

“We may see January to March contract pricing react to the tightness of supply,” said Andrew Harrington, an analyst at Patersons Securities Ltd. in Sydney. “Right now it’s some small force majeure here and there. If there’s any major flooding then it’ll be a big problem.”

Macarthur, Aquila Resources Ltd. and Vale SA last week declared force majeure, while Xstrata Plc shut part of its rail system and said it would use stockpiles to supply customers. Force majeure is a legal clause invoked by companies when they can’t meet obligations because of circumstances beyond their control. Rio Tinto has partially resumed operations.

Australia had its wettest September-to-November spring on record, according to the Bureau of Meteorology. Rainfall of between 25 millimeters (1 inch) and 100 millimeters may extend from eastern South Australia to southern Queensland in the four days ending Dec. 9, it forecast. Flood warnings are current for rivers in New South Wales, its northern neighboring state Queensland and Victoria to its south.

Heavy rain in 2008 helped drive spot prices for power-station coal and the type used in steelmaking to a record after producers in Queensland’s Bowen Basin, including BHP Billiton Ltd., had to declare force majeure.

Production Cuts

“Export coal sales are worth A$100 million ($99 million) a day to Queensland, so it doesn’t take very long for supply disruptions to start adding up,” Michael Roche, chief executive of the Queensland Resources Council, said in e-mailed comments. “Some open-cut pits are now looking more like dams than mines, and rapidly running out of room to hold more water.”

BHP, Rio Tinto, Macarthur and Whitehaven Coal Ltd.’s coal production may be lower than forecast because of the heavy rain, Goldman Sachs & Partners Australia Pty said in a report today. The deluge in Australia is being caused by a La Nina event that cools the Pacific Ocean and increases rainfall.

Fiona Martin, Melbourne-based spokeswoman for BHP, declined to comment on the potential impact. The BHP Billiton-Mitsubishi Alliance, known as BMA, is the world’s biggest exporter of coal for steelmaking and operates seven mines in the Bowen Basin.

QR National Ltd., Australia’s largest coal transporter by rail, said all of its network systems affected by weather have been reopened and are operational, according to a statement. Spokesman Paul Cronin wasn’t available for further comment.

Prices of power-station coal at Newcastle Port, the world’s largest export harbor for the fuel, rose $2.90, or 2.7 percent, to $109.80 a metric ton in the week ended Dec. 3, according to data from researcher IHS McCloskey. That’s the highest price since Oct. 10, 2008, the data show.

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