The world’s biggest miner, BHP Billiton is declaring force majeure at its coal mines in Australia’s Bowen Basin due to prolonged union strikes and heavy rain, in a move that could spur prices of metallurgical coal.
About 3,500 unionized workers have been staging rolling work stoppages at the mines since mid-2011 and Australia’s eastern state of Queensland, where the mines are located, was lashed by heavy flooding last year and heavy rain this year.
BHP Billiton operates seven coal mines in the Bowen Basin that supply about a fifth of the world’s metallurgical coal, or coking coal used in steelmaking.
“Now that this very important supply block is dropping out of the market, it’s got the potential of driving prices up... I’d say within the next few days we’ll see life (in prices),” Tom Price, an analyst with UBS in Sydney, said.
The mines, owned by BHP Billiton Mitsubishi Alliance (BMA), a joint venture between BHP and Mitsubishi Development Pty Ltd, have an annual capacity of about 58mt (million tonnes).
UBS’s Price estimated that the strikes and heavy rains have resulted in 2–3mt of lost production this year. But after about 16 months of tense negotiations between BHP and the worker’s union, the declaration of a force majeure did not come as a surprise to the market, industry experts said. BHP’s stock price was up 51 cents, or 1.47%, at $35.12 per share.
In late March, the mining workers’ union announced it was stepping up its strike actions.
BHP said it planned to hold a ballot for employees to vote on a proposed contract toward the end of April, but Stephen Smyth, a spokesman for the union, said he was confident such an agreement would be voted down. The union has already voted down two of BHP’s proposed contracts. The main points of contention in the negotiations have not been pay for unionized workers, but conditions such as work hours and scheduling.
Even without the industrial actions, however, BMA’s production would be suffering the impact of recent rains, Smyth said.
“A lot of the mines are filled with water. There’s next to no coal to be transported to the ports,” he said.