Australian floods to hurt production, growth – analyst

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 yesterday.

Large parts of the coastal city of Rockhampton were under water yesterday, with levels still rising and the 75,000-strong population bracing for the floods’ expected peak as a huge inland sea spawned by heavy rain across Queensland state drains towards the ocean.

Hundreds of people have been evacuated from their homes along the Fitzroy River, which runs through the city and has spilled over its banks and inundated houses and businesses in waters ranging from a few inches to waist-deep, with levels expected to rise another few feet. People are being warned to stay out of the water amid fears of snakes and even crocodiles at large.

Queensland state premier Anna Bligh said all air, rail and road links to the city had been cut – though local officials said later one highway heading north was still open. 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, Ms 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,” Ms 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.”

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,” Ms Bligh said.

“There is likely to be a significant long-term effect of that, not only national but internationally,” she told state broadcaster ABC, 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 ex-hausted 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 said.

Mr 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.

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 said. “The offset is that people are going to have to buy new stuff... That’s an actual boost.” Mr Oster said that, while some agricultural crops were clearly lost, the mines had suffered problems which essentially delayed rather than destroyed their production. 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.

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