12 Apr, 2017 - Story of the Week: The impact of Cyclone Debbie on Australia (GDP, AUD, Coking Coal, Agri, Tourism)

Cyclone Debbie hit north-east coast of Australia could have a significant impact on the countries’ GDP in the 2^nd quarter of this year. The most hit state, Queensland generate 19.5% of Australia GDP. The three most important sectors in the state are Agriculture, Tourism and Mining and all of them will feel the pain after Debbie, however shouln't have significant the impact on the Australian economy overall. 

Agriculture - Sugar Cane Production

Queensland add approximately AUD 10bil or 27% to the agriculture industry of Australia. The damage is currently assessed but the process seems to be difficult due to lost connection due to flooding. Approximately 95% of Australia’s sugar cane production comes from Queensland and the industry directly employs 16.000 people across the growing, harvesting, milling and transportation sector. The damage caused by Debbie will be in hundreds of millions.  According to USDA data Australia accounts for almost 3% of global sugar production with 80% exported.

Tourism 

The impact in tourism will be rather local, with main damage in Whitsunday region Queensland. There are however fears that the Great Coral Reef barrier could have suffer significant damage due to the extreme weather. However the impact on the reef could be also positive as the cyclone could cool down the waters around the coral reef which was significantly overheating the last year. According to the latest news the damages caused by Debbie on tourism should be less significant and the industry is already getting back on its feet.

Coking Coal Mining

Australia is a major global supplier of coking coal mining and related industry account for approximately 3-4% of Australia’s GDP. According to mining.com the worst hit area of the country, Queensland produces more than 50% of world coking coal production, mostly exported to China. Major producers like BHP Billiton and Peabody Energy already declared force majeure due to closed railways due to landslides and heavy rains and Australia’s coal exports may be disrupted for weeks. However material damage should be minimized as companies started preparation for the cyclone in time. The major damage will appear in the transportation infrastructure especially the railway lines.

Overall Queensland accounts for approximately 20% of Australian GDP and the Cyclones effect will be probably seen in the Q2 data. Debbie however didn’t reach the strength of the Cyclone Yashi in 2011 and relatively quickly calmed down. The impact should not be significant and we expect the more important will be the development in the construction industry and on the industrial metal market where iron ore and copper prices dropped the recent weeks. 

AUD is ahead of important support levels in several crosses but the break below these levels will also depend on the USD strength as this will largely affect commodity markets which the economy is largely dependent on. Follow the developments on Iron ore and copper front, also May housing data (Building approvals and Construction work done) for a hint how Q1 GDP growth could look like.

Good Luck and remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

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