Australian floods to hurt growth

2011-01-04 12:50

Sydney - Massive floods washing through northeast Australia, wiping out crops and swamping coal mines, are pushing up commodity prices and could shave national growth figures, economists said Tuesday.

The flood disaster in Queensland state, which supplies half the world's coking coal used for steel manufacture, has brought major mining operations to a standstill amid warnings it could be months before full production resumes.

"We have three-quarters of all of our coal fields unable to operate and unable to supply markets," state Premier Anna Bligh said.

"There is likely to be a significant long-term effect of that, not only national but internationally," she told state broadcaster ABC late Monday, adding it presented "a remarkable problem out there in the mining industry".

The catastrophic deluge, which has fanned out over an area the size of France and Germany combined, is driving up the prices of global commodities such as coal and wheat, analysts said.

Queensland coal production was already hit by unseasonal rains in the September quarter, meaning that companies exhausted their back-up inventory before the wet season hit with such power, said RBS Morgans analyst Tom Sartor.

"It was hand-to-mouth from then onwards and now we've seen meaningful downgrades in production and force majeure and site closures and that sort of thing," he told AFP.

"I am not exactly sure when mining is going to recommence and at what rate."

Sartor said heavy flooding in Queensland in early 2008 took 15 million tonnes of coal production out of the state but it was too early to assess the impact of the current floodwaters, significantly larger than two years ago.

That flood crisis saw prices for coal from Queensland peak at $305 (US) per tonne, he said, adding that the equivalent price was currently $253 but had jumped from $225 over the past three weeks and had the "strong potential" to go higher.

Economists said the impact of the floods was as yet unknown, but agreed they would likely hurt growth in the short-term.

"In the short-term you are going to have lots of disruption, lots of crop destruction," NAB chief economist Alan Oster told AFP. "The offset is that people are going to have to buy new stuff... That's an actual boost."

"You are probably looking at about 0.6 percent of GDP sort of thing over a 12 month period. That might not sound a lot but it is actually a lot. That would be a preliminary guess because you just don't know."

Oster said while some agricultural crops were clearly lost, the mines had suffered problems which essentially delayed rather than destroyed their production.

"The mines, as I understand it, a lot of them are flooded, so they just pump them out and then start again. It's not as if the coal has disappeared, whereas the crop has," he said.

CommSec economist Craig James said coal production and economic activity would be disrupted but when the floods subsided, there would need to be a lot of work done which would boost the economy.

"There's going to have to be things like carpets replaced, and curtains, and building work of a general nature," he said.

"It may have an impact in terms of GDP but at the end of the day that's more for the bean-counters rather than anything else.

"In terms of Australia's economic position, once you have a look at the entire year, I think the effects are going to even themselves out.

"You are going to have short-term negatives and you are going to have the longer-term construction and rebuilding work."

With the situation still developing and the prospect of additional rain still alive, Bligh has warned that mining firms will have a "long, slow climb back to full production".

While thousands of small businesses, some of which have been closed for 10 days already, are not expected to be able to open their doors again for several weeks, farmers are struggling to feed their stock.

Some residents would not be able to return to their water-logged homes for months, while the tourism sector -- already struggling against a surging Australian currency -- will also be hard-hit, Bligh said.

"Until these waters go down it's going to be hard to really fully assess the long-term economic and social impact but there's no doubt it's not just a one-off, week-long event," Bligh said.

"This is an event that will have a ripple effect across Queensland, Australia and some parts of the international region for many months to come."