Freight Rail, Safety, Standards & Regulation

Train derailment slowed Rio exports last quarter

Rio Tinto train - Photo Rio Tinto

Mining giant Rio Tinto has put lower quarterly sales through the first three months of 2015 down to bad weather, and a train derailment.

Rio announced its quarterly production results to the ASX on Tuesday, which included quarterly sales for its Pilbara iron ore business of 69.3 million tonnes.

While that figure was 8% up on the same quarter in 2014, it was down 12% on the previous quarter.

“This was a result of weather impacts from Tropical Cyclone Olwyn and a train derailment which temporarily blocked the inload train circuit at Dampier,” Rio said in its report.

There is no investigation listed by the Australian Transport Safety Bureau relating to the derailment.

While analysts were skeptical that the unlucky operational quarter in the Pilbara would allow Rio to achieve its 350 million tonne target for its Australian and Canadian iron ore ventures in the 2015 calendar year, the miner remained confident.

“Rio Tinto expects 2015 global shipments approaching 350 million tonnes … from its operations in Australia and Canada,” the miner said. “Shipments and production are each subject to weather conditions.”

Rather than luck, chief executive Sam Walsh said the company’s success would come down to the efforts it has made to streamline its operations around the world.

“We continue to drive efficiency in all aspects of our business,” Walsh said, “which is reflected in our solid production performance during the first quarter.

“By making best use of our high quality assets, low cost base and operating and commercial capability our aim is to protect our margins in the face of declining prices and maximise returns for shareholders throughout the cycle.”

Since its most recent peak at roughly US$140 a tonne just over a year ago, the price of iron ore has declined dramatically, to below US$47 a tonne at times in April, before settling this week around the US$50 mark.

For many of Australia’s smaller iron ore producers, the decline has meant the shutting down – or consideration of shutting down – of mines and export operations.

But for Rio and fellow big player BHP Billiton, the price decline simply means slimmer profit margins. Unlike many mining juniors, and Fortescue Metals Group, Rio and BHP produce market-grade iron ore for less than the current spot price, so they can still turn a profit.

What Rio’s temporary slowdown tells the market is that the price decline is not being driven solely by oversupply – Rio sent 10 million tonnes less into the seabourne market in the first quarter of 2015 than it did in the last quarter of 2014 – but that demand really is that bad.

UBS mining analyst Glyn Lawcock, quoted in Wednesday’s AFR, in fact said it appears that “Australia’s exports actually over the last six months look to have trended down”.

“What that tells you right now is that the weakness in the iron ore price hasn’t actually been the producers’ fault,” Lawcock was quoted. “It tells you that demand has been pretty poor over the past quarter.”