As coal mining in Queensland came to a grinding halt due to floodwaters, many buyers run to U.S. coal producers to meet their needs.

Weeks of flooding in the northeast portion of Australia had so far deprived the world market of around 13 million metric tons of metallurgical coal after the waters shut down 40 open pit coal mining operations in Queensland, the world’s number one source of black coal used in the production of steel.

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Immediately, U.S. coal producers, particularly from the Central Appalachian region which is the second biggest metallurgical coal supplier in the world, stepped in to meet the market need as buyers were forced to sacrifice quality and seek out alternate sources.

Vice President Ted Pile of Virginia-based Alpha Natural Resources, Inc. commented that they are in a “terrific position” and added, "Buyers are becoming more flexible on their coal specifications, knowing that much of the high quality, hard-coking coal is tied up or underwater."

The considerable rise in demand was also noted by Shane Harvey, Virginia’s Massey Energy Co. general counsel. "We are receiving inquiries to fulfil orders to replace coal affected by the Australian floods," he said. Massey had in fact ran out of metallurgical coal to sell for this quarter and can only accept orders for coal produced starting July this year.

Analysts forecast 10 per cent increase in U.S. coal export this year. Jim Thompson, managing editor of an industry newsletter commented, "The U.S. is going to have all the demand for export coal that it can handle in 2011."

Stifel Nicolaus analyst Paul Forward said that U.S. exports could exceed the record set in 2008 if Asian demand continues to rise. Although Australia is the favoured source due to the high quality coal and shorter distance, Forward said that the U.S. is also a natural supply source. However, he noted limitations in U.S. rail and port capacities. He was also wary about the decrease in global steel capacity utilization rates from the 2008 figure of around 90 per cent to the present 75 per cent.

The U.S. supply is also not free of challenges posed by nature as delays in U.S. coal shipment are expected due to rail yards congestion brought by the holiday storms. T. Parker Chief Executive David Host claimed that the bottleneck will resolve itself and that there will be sufficient facilities to meet the increased demand.

Market desperation was witnessed last week when a coal cargo, destined for the Asian market and already paid for by a trader, changed its course in the middle of transport and headed instead to a steel company that was in dire need of coal, a position it inadvertently ended up in after relying on the Queensland source.

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