Peabody’s Queensland mine fire stokes coal prices

Coking coal prices have rallied after a fire at Peabody Energy’s Queensland mine stopped production indefinitely.

A fire has shut Peabody Energy’s North Goonyella mine in Queensland.

Coking coal prices have rallied after an underground fire at Peabody Energy’s highest-quality Queensland mine stopped production indefinitely and added to market supply concerns around the nation’s second-biggest export.

On Friday last week, St Louis-based Peabody shocked the market by admitting that previous concerns over gas levels at its flagship North Goonyella coking coal mine in the Bowen Basin had resulted in a fire that would mean there would be no more production from the mine this year.

Underground coal mine fires are notoriously difficult to contain and recover from. The last big Australian underground coal mine fire, at Xstrata’s Blakefield South mine in the Hunter Valley in 2011, stopped production for 18 months.

Because of the prospect of an extended outage at North Goonyella, Peabody investors sold the stock down.

At the same time, commodity traders pushed coking coal prices as high as $US216 a tonne during the week as the North Goonyella outage added to concerns around Aurizon Holdings’ stoush with Queensland regulators, and the demand impact of Chinese environmental policies.

Coking, or metallurgical, coal is used to make steel and is susceptible to big price swings when there are supply disruptions.

“North Goonyella is actually the latest supply-side drama in met-coal world,” Macquarie analysts said yesterday. “China’s reform program in 2016, Cyclone Debbie in 2017, ­Aurizon’s rail capacity threats this year, to flag a few price-moving events … buyers are now sensitive to even minor supply-side shifts.”

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Australian hard coking coal futures on the Singapore Exchange were up 6.6 per cent over the week to $US210 a tonne yesterday, after reaching a five-month high of $US216 a tonne on Thursday.

Peabody’s US shares slumped 13 per cent on Friday, September 28, to $US35.64. An announcement during the week that efforts to contain the fire appeared to be working did not buoy the stock, which closed last in the US on Thursday at $US35.50.

Yesterday, Peabody could give no indication of when or if the mine would restart.

“We continue to work with the Queensland Mines Inspectorate and third-party personnel to manage next steps to address the situation,” a spokeswoman said.

“We will assess ongoing impacts as time goes by and provide updates as we have more information.”

Peabody said plans to extinguish the fire after it was discovered on September 28, including temporary seals and pumping in of inert gases to reduce oxygen, had yielded results.

“Only a slight amount of what appears to be either steam or white smoke emanating at this time from … one mine shaft,” the company said in its midweek announcement.

Pictures posted by theMackay Daily Mercury when the fire was first announced showed thick black smoke billowing from the mine. It may take months for workers to be able to enter the mine even after the fire stops.

Yesterday, Peabody said the mine had first experienced elevated gas and temperatures on September 1, during a longwall move, which resulted in an evacuation and moves to reduce the gas levels and restart work. The situation was announced to the New York Stock Exchange on September 19, with notification of a fire on September 28.

North Goonyella is Peabody’s highest-quality coking coal mine, producing 2.9 million tonnes in 2017. Macquarie said the market reaction appeared overdone, given this is the equivalent of just 1 per cent of the seaborne coking coal market.

But Seaport Global Securities analyst Mark Levin said the mine was important because it was one of the few mines in the world that delivered benchmark-quality coal.

“In short, the quality of the met coal that North Goonyella produces is just that good,” S&P Global Platts quoted Levin as saying.

“(Roughly 3 million tonnes) of production might not seem like a big deal. However, in the context of an exceedingly tight premium low-vol market, it’s definitely a much more meaningful number.”