ROCKHAMPTON, Australia (Reuters) – Australia's record floods are causing catastrophic damage to infrastructure in the state of Queensland and have forced 75 percent of its coal mines, which fuel Asia's steel mills, to grind to a halt, Queensland's premier said on Wednesday.
The worst flooding in decades has affected an area the size of Germany and France, leaving towns virtual islands in a muddy inland sea, devastated crops, cut major rail and road links to coal ports, slashed exports and forced up world coal prices.
"Seventy-five percent of our mines are currently not operation because of this flood," Premier Anna Bligh told local television. "So, that's a massive impact on the international markets and the international manufacturer of steel."
The Australian floods, which have cut off 22 towns and affected 200,000 people, have resulted from the La Nina weather phenomenon, which produces monsoonal rains over the western Pacific and Southeast Asia.
The La Nina is expected to last another three months after it produced Australia's third-wettest year on record in 2010, the nation's weather bureau said on Wednesday.
"Queensland is a very big state. It relies on the lifelines of its transport system, and those transport systems in some cases are facing catastrophic damage," said Bligh.
"Without doubt this disaster is without precedent in its size and its scale here in Queensland. What I'm seeing in every community I visit is heartbreak, devastation."
Residents in flooded towns scrambled to build sandbag levees on Wednesday in the hope of holding back the rising waters, which analysts estimate could shave around 0.4 percentage point of Australia's economic activity.
In Rockhampton, a cattle town of 75,000, a rise of just 20 cm (8 inches) in floodwaters would inundate another 400 homes and lap at the front door of a further 4,000 properties.
"Let's hope we dodge the bullet. Every centimeter counts," said Ian Stewart, Queensland's state disaster co-ordinator.
Three people have drowned in the floods. Authorities are warning people to stay out of floodwaters not just because of the risk of drowning but because snakes and crocodiles are being washed into homes and shops.
Some coal mines in Queensland, the world's biggest exporter of coal used in steel-making, were resuming production although the outlook remained uncertain.
Macarthur Coal said on Wednesday it had resumed transporting coal by rail to Dalrymple Bay Coal Terminal this week, but force majeure notices remained in place and future coal trains would depend on coal availability.
"Once the pits are free of water, we'll have more coal exposed that can be processed and transported," said Nicole Hollows, Macarthur's managing director. "It is not possible to predict when we will return to a steady state of mining as that largely depends on any future rain."
Wesfarmers is resuming output at its Curragh mine in the Bowen Basin, but maintained its force majeure.
A spokesman for Dalrymple port warned that unless mine companies resume production in the nation's biggest coal region soon, coal export shipments could again be cut.
Some rail lines carrying coal from inland mines expected to stay partially underwater for another week.
"In terms of river levels, they might recede by next week but these big mining establishments are obviously going to feel the affects for months to come," said Jess Carey, a flood forecaster for the Australian Bureau of Meteorology.
Coal mines with annual production capacity of more than 90 million tonnes have issued force majeure notices, which release them from delivery obligations.
The floods are having ramifications far beyond Queensland.
Australia accounts for more than half of global coking coal exports, which are vital to steelmakers, especially in Asian countries such as booming China.
The floods have hit mines which produced 35 percent of Australia's estimated 259 million tonnes of coal exports in 2009. An estimated $1 billion has been lost in coal production, said the Queensland Resource Council.
The floods weighed on investment sentiment with Australian stocks falling on Wednesday by 0.6 percent to a one-month low.
Shares in global miners BHP Billiton and Rio Tinto lost ground and top banks such as Commonwealth Bank fell on concern about their financial exposure to affected firms.
The Australian dollar also slipped back toward parity with the U.S. currency, after shedding 1.2 percent on Tuesday.
"Our equity analysts think that a lot of coal mines in Queensland could be shut down for two to three months, so that's going to be a substantial hit to exports going forward," said David Forrester, FX strategist at Barclays Capital in Singapore.
Shinichi Taniguchi, executive vice president at Nippon Steel Corp, the world's fourth-biggest steelmaker, said the firm had coal stocks to last up to three months, much higher than in 2008 when there was a similar supply shortage from Australia.
Eiji Hayashida, president of JFE Steel Corp, the world's No.5 steelmaker, said the supply crunch had come at a difficult time.
"We are not optimistic of the situation. We are worried, particularly because demand for steel products is tight for the time being."
Coal buyers like JFE are already talking with other potential suppliers in case Australia's exports are halted for an extended period.
Spot coking coal prices have risen around 10 percent to around $250 a tonne in a month as rains hit Australia.
FRESH FLOODS FEARED
Further downstream from the Bowen Basin coal region, more rains are forecast to cause fresh flooding. Flood warnings have been declared for seven river systems, with one swollen river now 6 km (4 miles) wide.
Rockhampton mayor, Brad Carter, said it would be two weeks before people could move back into their homes.
Residents in the town of St George have built dirt moats to try and stop the floodwaters reaching their homes, but authorities fear 80 percent of the small town will be swamped if the Balonne River reaches a record 14 meters on Saturday.
"It's started to rain here again. We could get a flood on top of our flood," said Barnaby Joyce, a National party senator who lives in St George.
Australia is the world's fourth-largest wheat exporter and the flooding in Queensland, along with heavy rains and earlier flooding across eastern Australia, could mean up to half the national crop -- or about 10 million tonnes -- could be downgraded to animal feed or low-grade milling grains.
The floods have halted the transport of all grains in Queensland, said GrainCorp Ltd, the country's largest grain handler. Queensland accounts for about 5 percent of Australia's total wheat output, or around 1 million tonnes.
Supply concerns sparked by the waterlogged crop in Australia had helped benchmark U.S. wheat futures to reach a 5-month high, before falling back slightly.
"The thing we are all very fearful of is that we've only just started our wet season. We've got three months of cyclone season to go," said Brent Finlay, the president of the rural lobby group AgForce.
"We're trying to encourage people to get whatever they can done in anticipation of another hit and the forecast up here isn't great."