Cyclone Wreckage Lays Bare Met Coal's Top Exporter Weak Link

Cyclone Wreckage Lays Bare Met Coal's Top Exporter Weak Link

(Bloomberg) -- Two weeks after a cyclone tore through Australia’s biggest metallurgical coal mining basin, the industry is still reeling.

The outages are a flashback to deluges in 2008 and 2010-11, which forced miners in the world’s largest exporter of the steel-making commodity to update operations with stronger flood defenses and better pumps to drain water. Though producers now have bigger walls, the weakest link in the supply chain this time has been rail lines, particularly the Goonyella network that was swamped by landslides, cutting off deliveries to major ports on the east coast.

Cyclone Wreckage Lays Bare Met Coal's Top Exporter Weak Link

“There’s not much you can do to protect the rail,” said Keith De Lacy, former chairman of Macarthur Coal Ltd., which was acquired by Peabody Energy Corp. “They are always subject to washouts. Goonyella is a major line and carries an enormous amount of coal, and once it’s knocked out it can’t just be repaired overnight.”

While three of the four closed rail networks are set to reopen this week, the Goonyella line to Hay Point and Dalrymple Bay export terminals is scheduled to stay down until about May 8, according to its operator, Aurizon Holdings Ltd. That’s triggered BHP Billiton Ltd., Yancoal Australia Ltd., Glencore Plc and Peabody to declare force majeure, a clause that allows producers to miss supply obligations due to unforeseen events.

“Clearly the flooding is something Aurizon will have to take on board in terms of future rail developments,” said Martin Ferguson, Australia’s resources minister during the 2011 floods and now head of natural resources for Seven Group Holdings. “We need to make sure we get the rail corridor up so we can regain our status as a reliable supplier.”

The troubles in Australia have restarted a rally by last year’s best-performing commodity. Prices have doubled since Cyclone Debbie’s March 28 landfall in the eastern state of Queensland, which sends met coal to buyers including China, India and Japan, the world’s biggest steel makers. Deutsche Bank AG estimates the state accounts for 58 percent of the global seaborne supply.

Cyclone Wreckage Lays Bare Met Coal's Top Exporter Weak Link

The disruptions have also shifted the market’s focus away from China, which last year imposed output restrictions that sent prices soaring. Spot hard coking coal was unchanged for a second day on Wednesday at $300.30 a ton after doubling over the previous nine sessions, according to The Steel Index. Australian producer Whitehaven Coal Ltd. said Thursday demand for metallurgical coal has "increased substantially" since Cyclone Debbie hit and it expects an increase in sales in the quarter ending June.

"You’ve got the State Emergency Service doing overtime,” said Trish Dorante, manager of the 230-room Coal Country Caravan Park in the outback town of Moranbah, which intersects the Goonyella system. The park has been housing coal workers from Mackay who were forced to evacuate the coastal city as Cyclone Debbie approached, she said. "The rain meant we were down to one lane in town. Now it’s about getting the rail lines back."

While Aurizon works to repair the crippled Goonyella line, mines have fared much better than previous years. In 2010, rains caused the Dawson River in Queensland to swell and break through a wall built to protect against a 1-in-100-years flood at the Baralaba operation, swamping machinery. A 2008 storm also led to the flooding of a mine operated by Ensham Resources Pty Ltd.

The Queensland Resources Council, which represents the state’s mineral and energy developers, recommended protecting the rail lines in addition to bolstering mine flood defenses in the aftermath of the 2011 outages, which reached their worst after Cyclone Yasi hit in February that year. The group said infrastructure needed to be “flood-proofed,” according to its submission to the Queensland Floods Commission of Inquiry.

“What we’ve seen this time around is better prevention measure from the mines with upgraded levee banks and pumping capacity,” Ian Macfarlane, the QRC chief executive officer, said by email Wednesday. “The upgraded infrastructure has generally been more resilient than the original infrastructure would have been.”

--With assistance from Thomas Biesheuvel

To contact the reporters on this story: Perry Williams in Sydney at, Ben Sharples in Hong Kong at

To contact the editors responsible for this story: Ramsey Al-Rikabi at, Liezel Hill