La Nina’s Threat Extends Beyond Farming to Iron and Coal Fields

(Bloomberg) -- Everyone from traders to farmers is trying to figure out what La Nina means for global food production. But there are also potentially price-altering implications for industrial metals.

Previous episodes of the weather phenomenon have damped deliveries of Australian coal and Brazilian iron ore, pushing up prices of the steelmaking ingredients. 

To be sure, there haven’t been any reports of major disruptions this time round. But rain has been heavier in Australia and arrived earlier to northern Brazil, underlining the supply-side risks for markets that have already started to recover some ground on expectations of Chinese stimulus.

“La Nina tends to have a greater impact in the first quarter, so it’s something to monitor,” Tiago Vespoli, a steel analyst at CRU Group, said in an interview.

The phenomenon typically results in below-normal temperatures in the northern hemisphere, heavier rainfall in Australia and northern Brazil and droughts in the southeast of the South American nation. In the severe La Nina of 2010-2012, coal producers declared force majeure after storms hit the Australian state of Queensland.

The Australian Bureau of Meteorology sees La Nina persisting until at least the end of January, while the U.S. Climate Prediction Center assigned a 95% chance of it lasting through February.

In Brazil, rainfall in the first three months of La Nina years has been 45% higher than other years, according to CRU, which sees “a high chance that iron ore shipments from northern Brazil can be disrupted over the first half of 2022.”

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