Rail operator Aurizon has reportedly delayed its final decision on a 430km rail line in the Pilbara to 2016, as a result of bearish conditions in the iron ore market in recent months.
Aurizon partnered with Chinese steelmaker Baosteel to acquire iron ore miner Aquila Resources last year, with plans in place to build a 40mtpa iron ore mine, rail and export project.
In February, Aurizon chief executive Lance Hockridge warned that the viability of a Pilbara line would be “very challenging” if iron ore stayed at the US$60 a tonne trading price reported at that time.
Since then, the iron ore price has degraded further, to as low as US$46.70 last week. Some long term forecasts are for an iron ore price below US$40 a tonne – a price which would leave almost all iron ore producers (apart from the majors Rio and BHP) operating at a loss.
Aurizon already earns just over 10% of its pre-tax profit from its iron ore haulage deals in WA’s mid-west region, but does not currently operate in the Pilbara.
The Baosteel-Aurizon project would be a major investment for the operator, but one it has reportedly been trying to make for some time. Now the pieces are in place for Aurizon to get its Pilbara railway, however, the timing could not be worse.
According to Fairfax reports, the company has decided to delay its investment decision until 2016 as a result.
In the meantime the company plans to work with its existing customers to improve productivity, and reduce costs, according to the report.
“Our aim in improving supply chain efficiency is to create long-term mutual value and to assist our customers’ products to remain competitive in global markets,” an Aurizon spokesperson was quoted to have said.
A market announcement from Aurizon is anticipated later this month.