Commodities prices to withstand Australian cyclones

Australia's commodities sector is bracing for another active cyclone season, but unlike last year, prices of key exports such as iron ore, coal and sugar may show little reaction as Europe's economic turmoil and surplus crops pressure markets.
A barrage of cyclones and tropical storms during the last November-to-March "wet" season flooded collieries and halted iron ore mining while ripping apart sugar and wheat crops, driving up commodities prices around the world.
Meteorologists predict more storms than usual this season as a La Nina weather pattern again brings heavy rains. "I don't think the market upside is going to be as dramatic as it was 12 months ago because the economic outlook across Asia is a bit more subdued than it was back then," UBS resources analyst Tom Price said, referring to prices for coal, one of Australia's top exports. Any "upside push to prices" will likely be short-lived, he said.
Storm damage cut Australia's commodity-weighted economy's gross domestic product growth by A$20 billion, or 1.5 percent, in the 2010-2011 financial year.
Cyclones and rain last year forced dozens of companies to evacuate flooded coal mines, some of which are only now drying out, a situation that makes it more likely production could be hobbled by cyclones. "If you have a lot of rain in the next six weeks or so, the ground is already going to be saturated. There's not going to be much leeway for the ground to absorb much more water," Patersons analyst Andrew Harrington, said, adding it was "easy" to see how flooding in coal mines could occur again this year.
Australia is the world's largest coal exporter and since it accounts for roughly two-thirds of global trade of coking coal, used for steel production, the floods last year caused prices to skyrocket.
Contract prices for hard coking coal raced as high as $330 a tonne and averaged $289 a tonne for all of 2011. This was a 52 percent hike on the average contract price in 2010. This year, plentiful supplies from China's Shanxi province and Mongolia coupled with a gloomy global outlook have many analysts predicting a price drop in 2012, with some forecasting average prices under $200 per tonne.
"There's not the same urgency about securing metallurgical coal supply right now," UBS's Price said. "If industrial activity declines that means people are burning less coal. It's not just adequate supply, it's weak demand. It's a soft price outlook."
Australia's iron ore sector, sitting directly in the path of the Indian Ocean's notorious "Cyclone Alley", could also face disruptions. But with iron ore prices down 30 percent from February, the impact is unlikely to match last year's. The spot price of the steelmaking raw material was at $133.80 a tonne on Thursday, down 30 percent from a record high in February of about $192 a tonne.
The high price was primarily the result of global crude steel production at close to maximum levels over the previous six months combined with iron ore supply disruptions due to last season's heavy rainfall in Australia and in Brazil, home to the single-largest producer Vale.
Australia this year will account for about 40 percent of the 1.1 billion tonnes of iron ore traded on world markets.
Also, unlike last year, prices of steel in China, the world's biggest buyer of iron ore, have either flattened or dropped since the start of the current cyclone season. China's steel output of 49.88 million tonnes in November was the lowest in 14 months.
Australia's producers, including heavyweights Rio Tinto and BHP Billiton, insist they are selling all the ore they can mine into contracted sales volumes, meaning there is no margin for supply interruptions. This suggests any sizeable delays to shipping could provide an upside push to prices.
"That's more likely if the disruptions last a long time, which they typically don't," said an executive with a mining company who asked not to be named.
"Usually operations are up and running within a few days of the storm passing and the reopening of the ports," he said.
Unseasonably wet weather has already pelted Australia's wheat crop and an abundance of the rain-soaked grain is set to dampen US and South American corn prices in 2012, as key corn importers switch to the cheaper, damaged wheat for animal feed.
"The biggest problems we've got are north west New South Wales and South Queensland which are already under-harvested," Jonathan Barratt, managing director of Commodity Broking Services, said, estimating about 50 percent of the crop was yet to be harvested in the eastern regions. "If we see more cyclone activity and more rain that will apply more pressure on the farms to get their harvest in."
The harvest typically occurs in December or January but can run as late as March during wetter seasons. Chicago corn and wheat futures recently fell to multi-month lows after the US Agriculture Department boosted global and US stock estimates.  Heavy rains and strong winds could also threaten Australia's sugar crop. Australia sells most of its sugar in Asia.