BHP could lose iron ore exports worth hundreds of millions dollars from this week’s rail derailment.
If the loss is sustained for a couple of weeks or more it would be enough to reduce the country’s monthly trade surpluses by over $A1 billion or more. The daily losses of exports are around 750,000 tonnes, valued at $US56 million, or more than $A77 million).
Monday’s derailment will see BHP run out of stockpiled ore at its Port Headland export facility and therefore unable to meet contracts for an unknown period of time.
That would force the company to declare force majeure (meaning it can’t meet its contracts) to protect itself against financial penalties for non-delivery.
The loss could be as much as five million tonnes, depending on how long it takes to restore the rail line to full capacity and then progressively ship as much ore as possible to meet export contracts and rebuild stocks at Port Headland.
It could take an unknown number of weeks, perhaps months before stocks have been rebuilt and exports are at capacity. In the meantime, BHP could lose contracts to rivals like Rio Tinto or Fortescue Metals.
In a statement BHP made clear stockpiled iron ore at Port Headland would not cover the entire period of interruption and BHP would liaise with customers on contractual commitments over the period.
In fact, BHP said it will run out of stockpiled ore at its Port Headland export facility before its rail line is fully operational again.
It could take more than a month to rebuild stocks and exports.
The company’s private Mount Newman rail network was shut down after a BHP ore train heading to Port Hedland was deliberately derailed in WA’s Pilbara region on Monday morning.
More than 130 people are working on removing the train wreckage and repairing about 1.5 kilometres of damaged track.
In a statement on Wednesday BHP said normal train operations were currently suspended but it expected to have partial rail operations back online in one week.
While it did not detail the financial impact of the derailment and all of the company’s mine sites are continuing to operate, an idea of the potential impact can be seen from the iron ore export data for 2017-18 and estimates for the current financial year.
BHP’s WA iron ore sales rose 2% to 273 million tonnes in 2017-18 and its production guidance for 2018-19 is 273 to 283 million tonnes.
This is around to an average of 5.25 million tonnes exported every week, or around 750,000 tonnes a day. At current prices above $US75 a tonne landed in northern China, that’s worth just on $US400 million a week (more than $A550 million) or $US56 million a day.
The train, consisting of four locomotives and 268 wagons filled with iron ore, was deliberately derailed by BHP’s remote operations centre on Monday morning.
It had been traveling from Newman to Port Hedland when the driver got out at Hester siding to inspect an issue with an ore car before the train started moving again.
With no one on board, the train traveled 92 km in 50 minutes before being deliberately derailed near Turner siding, about 119 kilometers from Port Hedland.
The impact on exports in November and December follows a fall in exports from Port Headland in October. Figures released this week by the Pilbara Ports Authority showed that iron ore exports year on year and month on month in October.
That fall helped lift prices of iron ore above $US76 a tonne in northern China before a fall in the last couple of days of October and early days of November took the price back to just under $US74 a tonne. But prices jumped on Monday back above $US75 a tonne on news of the derailment and could go higher if the shortage of 61% and 62% Australian ore becomes critical.
The Ports Authority said 40.18 million tonnes of ore was exported last month, down by 2% from October 2017, and 7.7% from September’s 43.51 million tonnes.
BHP shares ended down half a percent at $33.39