Xstrata declares force majeure at Australia coal mines

By Fayen Wong

SYDNEY (Reuters) - Xstrata (XTA.L) became the fifth Australian miner to declare force majeure on coal shipments from the northeastern state of Queensland due to recent heavy rain, which other Australian producers said were hampering recovery in their operations this week.

A spokesman from Xstrata's coal unit said the force majeure will affect all immediate shipments from the Newlands thermal coal mine, which has a production capacity of about 8 million tonnes a year, and from the 4.9 million-tonne-a-year Collinsville mine, which produces both coking and thermal coal.

Force majeure is a term in a contract allowing firms to default on sales commitments to customers.

Xstrata, the world's largest exporter of thermal coal, holds a 55 percent stake in a joint venture, which includes the Newlands and Collinsville mines and the nearby Abbot Point coal terminal. Itochu Corp (8001.T) holds a 35 percent stake while Sumitomo Corp (5457.T) holds the rest.

The latest supply woes from Xstrata mines in Queensland state, which produce mostly thermal coal that are sold to utilities and cement makers in Asia, Europe and South America, are expected to drive steam coal prices to a new high.

Thermal coal prices in Asia jumped 37 percent this year to a record peak of $130 a tonne earlier this month, boosted by China's temporary export halt and supply disruptions from Australia.

"Needless to say, this is going to drive spot prices much, much higher, which will in turn push up long-term contract prices for 2008. There has really been a series of bad news for buyers," said Mark Pervan, a senior resource analyst at Australia & New Zealand (ANZ) Bank.

Prices for coking coal, used in steel making, will get a boost from the news, Pervan said. Traders said prices of coking coal for immediate delivery have surged to more than $220 a tonne, compared with about $150 a tonne in December before the rains arrived.