Australia cuts coal export

Australia's government forecaster said higher prices will cushion the blow to the nation's China-focused mining boom, predicting total commodity export earnings up 18 percent to a record $270 billion in the year ending June 2012.

The flooding and cyclone damage has already contributed to the biggest slump in Australia's GDP for 20 years in the first quarter.

By some analyst estimates it could be another six months before the country, the world's biggest supplier of steel-making coal and also a major thermal coal shipper, bounces back and only then if next season's monsoonal rains arrive late.

"If the rains come early again next year, all bets are off for a full recovery," David Lennox, a commodities analyst for research firm Fat Prophets, said.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) cut its estimates for steel-making coal output and shipments by 4.4 percent and 5.6 percent respectively for the year ending June 2012.

Collieries in the northern tropics run the risk of more flooding, especially if the region suffers a second early start to the summertime "big wet" season before they have fully recovered from last season's deluge.

Investment bank UBS expects Australian coal producers to take until the end of the year to recover, twice as long as initially expected when northern mines were hit by floods affecting an area the size of France and Germany combined.

One UBS analyst has termed the Queensland coal fields as "one big swimming pool."

Another issue checking supplies is labour unrest. Trade unions were due on Tuesday to meet the BHP Billiton-Mitsubishi coal-mining alliance over non-union contract mining and collective bargaining. The unions have already staged temporary work stoppages of up to six hours and are threatening wider strikes if the talks deteriorate.

"There's a new risk to supply and that's BHP having a strike," UBS analyst Tom Price said.

BMA's mines have a combined production capacity of more than 58 million tonnes per year and account for about a fifth of the global trade.

A strike at the BHP Billiton and Mitsubishi mines would translate into a loss of one million tonnes per week, according to Price, who added that last week's work stoppages likely resulted in a loss of about half a million tonnes.

UBS's forecast for Australia's metallurgical coal exports is 20 million tonnes less than ABARE's 144 million tonne projection.

Despite the drop in mineral exports, Australia's commodity export earnings are expected to rise 18 percent to a record $270 billion in the year to June 30, 2012 as volumes and the value of energy shipment soar and lift the economy after the first quarter contraction.

Last summer's wet weather cost Australia's economy A$12 billion in the year to March, with the mining sector bearing the brunt, according to Treasury estimates.

The disasters sliced an estimated 1.7 percentage points from growth.

Flood-affected coal miners are receiving a boost from high metallurgical-coal prices. A benchmark price settlement negotiated by Anglo American was struck at $315 a tonne for the third quarter with Asian mills, just beneath a record high of $330 agreed in the second quarter.

The reduction in metallurgical coal export forecasts are no challenge to Australia's dominance in the sector.

Metallurgical coal exports for 2011/12 were estimated at 164.2 million tonnes, down from the previous forecast but still a rebound from the 143.5 million tonnes estimated for 2010/11.

In calendar 2011, ABARES is forecasting Australia's metallurgical exports at nearly 60 percent of the global total, with the United States a distant second with 20 percent.

ABARES also cut the forecast for shipments of coal for power generation by 5.2 percent to 152.6 million tonnes from 161 million tonnes.

Australia's iron ore exports would total 437 million tonnes in 2011-2012, ABARES said, down by 0.6 percent on the previous forecast following a spate of cyclones that swept across the western iron belt.

Australia is the world's single-largest exporter of the ore, with both it and coal in strong demand globally to make steel.

ABARES forecasts total iron ore production to rise to 466.7 million tonnes in 2011/12, up from 441.6 million tonnes a year earlier.

Analysts said big miners are betting China's demand for raw materials will continue to surge despite signs of cooling economic growth as Beijing clamps down on bank lending.

"The key swing factor is China and the breathtaking speed of Chinese crude steel production in the first five months is simply too fast for a supposedly cooling economy," Liu said.

China's steel mills defied credit tightening, razor-thin margins and a possible power supply crunch to produce a record 60.25 million tonnes of crude steel in May.

Copyright Reuters, 2011