2011 Queensland Floods: Economic Impacts of a Flood Disaster

The 2011 Queensland Floods severely affected a number of important industry sectors, including the coal industry, logistics service providers, the agricultural sector as well as retail, insurance, and construction. First estimates suggest that the floods will lead to significant cuts in Queensland’s exports of coal and agricultural production which could amount to up to AU$ 6bn or 0.5% of GDP – not including clean up costs.

Coal Industry
One of the industry sectors most affected by the Queensland Floods is the coal industry, one of Queensland’s most important industry sectors. Direct damages to mining operations were caused primarily by flooding of the mines, but mining companies also encountered logistical problems with coal transports due to flood impacts on transportation infrastructure. Many of the large mining companies have declared a “force majeure” event. Among the companies affected are Anglo American, Aquila Resources, Macarthur Coal, Rio Tinto, BHP, Peabody, Wesfarmers and Xstrata. First estimates suggest that about 75% of all mines are closed. The exact extent of the damage is currently unclear, as many companies have not yet released loss data and floods still persist in many areas. It can be expected that the floods will cause short to medium term supply shortages which are likely to result in revenue losses for affected companies and to bring about increases in commodity prices. Mining companies in Queensland primarily produce metallurgical coal used in steel production. Queensland exports about 150 Mt of coal per year, about 75% of which is metallurgical coal and 25% thermal coal. As a result of supply shortages, the price of steel is likely to increase. Some effects on prices for electricity generation can be expected as well, albeit to a lesser extent. Most affected by price increases will be the main buyers of coal from Queensland, including Japan and Europe, followed by India, Korea and Taiwan. Some of these countries have started to investigate raw material supplies from other regions in order to overcome supply shortages.

Road and Rail Traffic
Road and rail traffic across all flooded areas of Queensland was severely disrupted. Affected by the floods was the “Black Water Line”, a major rail line for coal shipments to the port of Gladstone in Queensland, the fourth-largest coal export terminal in the world. The Black Water line was closed temporarily. QR National, operator of the Black Water Line, expects that the line will be reopened at the end of next week (20 Jan). The exact economic losses from flood impacts on passenger and cargo traffic are still unclear. The Port of Brisbane was closed temporarily. Reports by Sydney Morning Herald suggest that there is already a 30 km line of ships off the coast of Queensland, waiting to be unloaded.

Agricultural Sector
Due to the extensive flooding of farmland a decline in agricultural exports can be expected, especially of wheat, sugar and cotton. As a direct response to the flood and supply shortages, cotton futures extended gains to a three-week high in New York. The exact impact of the floods on the agricultural sector is still uncertain; further crop losses may occur if the wet weather conditions continues. Prime Minister Julia Gillard, in a joint statement with Queensland Premier Anna Bligh, announced that small business owners and farmers in flood-affected areas of Queensland are to receive additional disaster assistance of up to $25,000 from the Commonwealth and State governments.

Retail
The retail sector suffered from supply shortages, brought about by panic buying, logistical problems with the delivery of goods due road closures, power and staff shortages. Supermarket chain Coles had to close 14 of its 148 shops, while Woolworth reported the closure of 13 of its branches. Several department stores were also affected. Prices for many food items have already risen considerably, such as for fruits (mangos, bananas, pineapples, papayas) and vegetables.

Insurance
According to initial estimates, insurance damages will amount to about AU$1bn, however, accurate damage reports are not yet available. It can be expected that the economic damage brought about by the floods will comparable to the damage caused by the 2009 Victorian Bushfires in the state of Victoria.

Construction Sector
Many infrastructure projects have come to a halt due to heavy rain and flooding. Leighton Holdings, for example, has temporarily stopped work on one of its biggest infrastructure projects, the AU $ 4.1bn Airport Link in Brisbane.

Other Impacts
Longer term implications for a range of sectors such as the tourism sector remain to be seen. The impact of flood runoff on tourist attractions like the Great Barrier Reef is unclear. It is expected that potential environmental damage could occur.