The price of steelmaking ingredient iron ore could remain elevated if BHP is forced to suspend exports from its operations in Australia for an extended period because of the damage caused by a runaway freight train.
BHP on Monday suspended all of its rail operations in the remote Pilbara region of north-western Australia after it was forced to derail a loaded ore train.
The Australian Transport Safety Bureau said the train, consisting of four locomotives and 268 wagons, had travelled for almost 100km without a driver before it was finally brought to a halt.
It said the damage caused to the train — capable of carrying 35,000 tonnes of ore worth $2.6m at current market prices — had been “significant”, raising questions about the wider impact on BHP’s iron ore business and the market. The train was eventually derailed at a set of points about 120km from Port Hedland, the world’s largest iron ore loading facility
“Based on the distance from Port Hedland, it would appear that the great majority of BHP’s Pilbara production would be impacted,” said Edward Sterck, analyst at BMO Capital Markets. “If there is significant track damage it could be that train loadings and speeds could be constrained post repairs and restarting of shipments.”
The price of iron ore has risen in the past couple of weeks, climbing to more than $75 a tonne as Chinese steel mills have cranked up production to meet robust demand and stockpiled ore ahead of the winter. The gains have been in marked contrast to the performance of industrial metals such as copper and nickel, which have continued to decline on fears the US-China trade war could dent global economic growth.
“BHP represents about 20 per cent of global seaborne iron ore supply. If the suspension is lengthy, it could be to the benefit of other producers if iron ore prices react positively to the reduction in market supply, even though we would be expecting a slowdown in demand over the Chinese winter shutdowns,” Mr Sterck said.
BHP’s iron ore mines in Western Australia are the company’s most important source of income, responsible for almost 40 per cent of group earnings before interest, tax, depreciation and amortisation last year.
It operations in Pilbara consist of four processing hubs and five mines connected by more than 1,000km of rail infrastructure and port facilities. The Mount Newman line runs for more than 400km, linking the mines to Port Hedland.
In a recent update, BHP said it expected to produce between 273m and 283m tonnes of iron ore in the year to June 2019, a forecast that could be under threat if the damage caused by the derailment is significant.
BHP said in a statement: “A Western Australia Iron Ore train has been derailed near Turner on route to Port Hedland this morning. No one has been injured. We are working with the appropriate authorities to investigate the situation.”
The ATSB said the loaded ore train was travelling on BHP’s Newman to Port Hedland railway on Monday when the driver alighted from his cab to inspect a wagon.
Before he could get back on board the train started rolling. With no one on board, the train travelled for almost 100 kilometres before it was deliberately derailed by staff at BHP’s remote operations centre in Perth.
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