Runaway Iron Ore Train Derailment Will Take BHP a Week to Solve

(Bloomberg) -- BHP Billiton Ltd. expects to take about a week to recover from the derailment of one of its iron ore trains that’s halted its rail operations in Western Australia, potentially bolstering prices of the steelmaking raw material.

The company was forced Monday to derail the train that traveled 92 kilometers (57 miles) without a driver across the Pilbara, the nation’s major iron ore producing region. BHP’s iron ore mine operations are unaffected and it’s working with authorities to investigate the cause of the incident, a company spokeswoman said Tuesday.

Stockpiles at Port Hedland will be used over the coming days to maintain port operations, BHP said in a statement. It estimated that about 1.5 kilometers of track has been damaged and anticipates the recovery process to take about one week.

Iron ore surged in October as steel mills in China churn out record volumes before anti-pollution curbs kick in over winter and the government beefs up stimulus. The rail mishap for BHP, the world’s third-largest exporter, could give prices a short-term boost, according to analysts.

Tighten Market

“At this stage it looks like a material derailment,”  said Glyn Lawcock, an analyst at UBS Group AG. “Short term this may tighten the market.” Lost railings from mine-to-port over seven days could amount to about 6 million metric tons of ore, he said.

“We would expect BHP to still ship during this period out of stock at port, but it is 
expected there will be some impact as customers will be awaiting certain products, ” he said. The company should be able to make up the shortfall in volume over the remainder of its 2019 financial year, he said.

Iron ore producers in Western Australia run some of the world’s longest trains. BHP transports material from its large mines -- which make up almost 40 percent of its profits -- to Port Hedland, where it ships to customers in China and Japan. BHP shares rose 1.3 percent in Sydney trading.

“They are playing it down, but sometimes these things can take a lot longer than you expect,” said Daniel Hynes, a senior commodities strategist at Australia & New Zealand Banking Group Ltd. If the suspension “does last just a week I wouldn’t expect to see prices sky-rocket, but there will certainly be some sort of supply disruption premium in the short term,” he said.

Port Hedland is the world’s largest iron ore export port with a total annual throughput of 519 million metric tons in 2017/2018, according to Pilbara Ports Authority. As well as BHP, it’s used by miners including Fortescue Metals Group Ltd. and Roy Hill Holdings Pty. BHP shipped a total of 275 million tons in fiscal 2018.

The company said the incident occurred while the driver was inspecting an issue with the train when the locomotive ran away. The loaded train, which consisted of four locomotives and 268 wagons, was deliberately derailed from BHP’s remote operations center in Perth.

To contact the reporters on this story: James Thornhill in Sydney at jthornhill3@bloomberg.net;Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Keith Gosman

©2018 Bloomberg L.P.