In it for the long haul

Multi-billion dollar projects to develop rail and port facilities have not lost their appeal for many of the world’s major bulk commodity producers and corporations. Despite the recent sluggish performance of the global economy and the end of the commodity boom, miners and grain producers continue to look to Asia – and to invest in the rail and ports needed to deliver the raw materials to world markets.

 

From southern Africa to Australia and Canada, large sums are being ploughed into new and old rail lines to haul coal, ores and grain over long distances to new and revamped ports and on to world markets. And China is still exerting a huge pull for these long-term – and often eyewateringly costly – investments.

Southern Africa is benefitting from a round of internationally funded refurbishment and expansion of its rail systems and ports. Much of this investment activity has been focused recently on Mozambique as its government and investors look to unlock the country’s huge coal and mineral reserves.

With Mozambique’s infrastructure still scarred by the country’s long civil war, the African Development Bank (AfDB) has been promoting investment in the country’s sparse and often dilapidated lines and terminals.

 

The biggest rail and port project to date is an ambitious 912 km rail line that links the coal mining province of Tete to the deepwater port of Nacala-a-Velha in the north of Nampula province.

 

Tete offensive

Global industry heavyweights Vale SA, the Brazilian miner, and Japanese conglomerate Mitsui, with backing from AfDB, are behind the US$4.5B development of the Nacala Logistics Corridor.

 

The project has delivered 228 km of new rail and 684km of refurbished track that runs through landlocked Malawi to a newly built coal terminal on the opposite side of the Nacala Bay from the existing port. 

 

The new Nacala terminal will receive around 20 trains a day and 12 ships a month, and has the capacity to handle 18 Mtpa of coal. International engineers Kentz led the construction of the coal terminal. Australia’s WorleyParsons managed the rail construction, with Mota-Engil of Portugal undertaking the work in Malawi. The first coal shipment was carried to Nacala in December 2015.

 

AfDB believes the Nacala project will bring a much needed competitive edge to Mozambique’s mining sector and help it to exploit further the substantial coal reserves in its vast interior.

 

Crucially for Mozambique’s  economy, there is open access for other miners exploiting the landlocked Tete province’s rich deposits of high-quality metallurgical coal. These include the Indian government-led industrial consortium International Coal Ventures Private Limited, which owns the Benga field, and compatriot Jindal Steel & Power, which operates the Chirodzi mine.

 

The existing 575 km Sena line to the port Beira, which had struggled to serve the region’s mines, has also been upgraded.

Huge investment

 

The Nacala initiative is huge by any stretch of the imagination, and the AfDB claims that it is one of the largest single foreign direct investments into Africa in recent years.

In December, AfDB also unveiled a US$300M loan to assist the financing of the project, and stated that further feasibility discussions are underway for other port and rail extension lines into neighbouring countries.

 

The model for these projects is the US$2.8B Maputo Development Corridor, which was set up back in 1996 to link the region by rail and road with the Mpumalanga and Gauteng provinces in South Africa, and to offer Swaziland an alternative route to the port of Durban.

Africa express

 

Over the border in South Africa, state-owned Transnet Freight Rail (TFR) is also finalising the finances for an estimated R17B (US$1.5B) railway through Swaziland to relieve heavy congestion on the Ermelo line to Richards Bay. The 146 km rail link from Lothair in Mpumalanga is planned to open in 2017.

Around 15 Mtpa of general cargo is railed from Mpumalanga to the Richards Bay Coal Terminal (RBCT), but Transnet plans to switch this to the new Swaziland line to free up capacity on the Ermelo line.

 

TFR is also planning a 464 km line from the undeveloped Waterberg coalfield to the north to Richards Bay, which will handle 80 Mtpa, with some exports going via the Matola Coal Terminal in southern Mozambique.

Transnet, which is one of the continent’s leading infrastructure investors, has an overall seven-year R336B (US$24B) plan to expand and upgrade rail and port capacity.

Transnet’s “counter cyclical” investment programme – including more than 1,000 new locomotives – is a bold response to China’s slowdown, the end of the commodities boom and low South African growth.

 

The project aims to reduce bottlenecks and shift freight from roads to rail.

However, some projects may take longer than previously expected because of the decline in commodity markets, says Siyabonga Gama, Transnet’s acting group CEO.

One of the major hurdles faced by the region’s coal exporters is the heavy bottlenecks on rail lines into the main bulk terminal on the east coast at Richards Bay.

One long-awaited project to ease the traffic is the proposed Trans-Kalahari line between neighbours Botswana and Namibia, which would establish a 1,500 km rail link between the Mmamabula coalfields and the port of Walvis Bay on the west coast of southern Africa.

Botswana has coal reserves of 212 Bt, and wants to find new markets. But Namibia’s port authority would need to develop its facilities to handle 65 Mtpa of coal from Botswana. Although a bilateral agreement was signed in 2014, no investor has yet been secured for the project, estimated at N$100B (US$6.6B) in 2014.

 

Bay talk

 

Despite low coal prices and the fact that South Africa’s economy has stalled, investment funds have been fielded for vital modernisation work  on the country’s main coal export facility.

 

RBCT is spending R1.34B through to 2018 on upgrade work on its aging portside infrastructure, some of it 40 years old. Work is underway on the modernisation programme announced last July, with the new rail-mounted handling equipment including two 6,000 t/h stacker reclaimers and two 10,000 t/h shiploaders.

A new electrical substation will be constructed and five others updated. Sweden’s Sandvik Mining Systems is building the machines, with project management undertaken by Aurecon of South Africa.

RBCT chairman Mike Teke says the investment demonstrated long-term confidence in mining, and would be completed in time for a recovery in global markets.

Meanwhile, as part of its investment programme, Transnet has made significant investments to increase its capacity to rail coal to Richards Bay. Transnet moved 74 Mt of coal to the coal terminal in 2015, which was 2% up on the previous year, with 27 trains arriving each day. RBCT wants Transnet to raise its rail capacity to 81 Mtpa, while the terminal expands its capacity to 91 Mt. Previous plans to expand overall capacity to 110 Mtpa have been put on hold. Last year no coal was shipped to China, although Indian trade grew, but iron ore exports were flat.

Slow ahead

 

South Africa’s bulk commodity exporters are bracing themselves for another slow year ahead. However, cargo volumes are likely to hold up as miners keep their production volumes level, fearing the loss of market share if they reduce output.

Transnet has also remained confident that infrastructure investment will pay off when the global markets recover.

The parastatal has pushed on with a R27B manganese terminal to start operations in 2019, despite a slump in demand for the metal that South Africa leads the world in producing.

The ambitious plan involves an upgrade of a line from Hotazel in the Northern Cape to the relatively new port at Ngqura, 20 km northeast of Port Elizabeth in the Eastern Cape. Capacity will be lifted to 16 Mtpa with the use of 200-wagon trains.

Australia is also pushing on with multi-billion dollar port and rail developments to capture Asian trade.

The major rail project for Australia’s mining sector remains the long-awaited Abbot Point coal export terminal, which is still inching its way through the federal approval process, amid concerns over its impact on the northern Queensland coast and the Great Barrier Reef.

In December, the federal environment minister, Greg Hunt, gave the go-ahead for dredging work for what will be one of the world’s largest coal ports. Adani, the Indian mining conglomerate, won approval back in 2014 for a 300 km rail link with the US$16B Carmichael mine in the Galilee Basin. The A$2.2B railway, when complete, will be able to carry 100 Mtpa of coal.

Asciano battle

Meanwhile, an Anglosphere tussle – with big ramifications for bulk rail – between Canada’s Brookfield Infrastructure Partners and Australia’s Qube for control of Asciano, the owner of freight giant Pacific National (PN), looks to be rumbling to a conclusion as this edition of Bulk Materials International goes to press. In a surprise move, Qube and Brookfield have proposed a lastminute joint offer of A$9.05B for Asciano.

The new proposal would see PN’s rail operations sold off to Qube consortium partners Global Infrastructure Management Australia, Canada Pension Plan and Beijing Shunrong Investment, along with some members of Brookfield’s consortium.

Brookfield Infrastructure itself would not become a PN shareholder, which should overcome Australian Competition and Consumer Commission (ACCC) monopoly concerns regarding rail operations in Western Australia.

PN handles freight for coalfields in Queensland, as well as the Dalrymple Bay Coal Terminal, and New South Wales’s Hunter Valley.

Grain demands

 

Australia’s grain exporters with eyes on Asian markets want more investment and access rules for the country’s rail infrastructure. Low dry bulk rates are increasing competition with international growers, including North America.

 

Export-focused Western Australia produces around 40% of the national crop, and rail offers the most efficient transport for grain to port in the country’s largest state.

 

CBH, the state cooperative, and Brookfield spent much of 2015 negotiating over long-term rail access. Canada’s Brookfield is the state’s sole rail operator with 3,400 miles of track, with half dedicated to grain, and has invested A$2B in the state’s rail system. However, the industry and the Grain Producers Associationwant tougher competition rules for  infrastructure monopolies.

 

Canada’s grain sector has made major inroads into Asian markets, and is bucking the negative trend for the country’s other bulk commodity industries hit by the global slowdown.

 

Canada has overtaken the US as the developed world’s major wheat exporter, according to latest International Grain Council (IGC) estimates.

 

Grain exporters from Canada’s Prairies are benefitting from the weakness of the Canadian dollar, low dry bulk rates and rising demand for its grain from Asia. And Canadian exporters have been able to undercut US prices.

 

For the first time, Canada exported more wheat than the US in 2014/15, with 24 Mt railed and shipped – up a third from a decade ago. IGC reports 23 Mt and 22Mt over the same period for the US and Russia, respectively.

 

Canadian capacity

 

Confident Canadian grain handlers are ploughing earnings back into rail and port terminal capacity. Global Grain Group (G3), which is owned jointly by global trader Bunge and Saudi Agricultural and Livestock Investment Co, is constructing a C$500M terminal at Port Metro Vancouver, served by the Canadian National Railway.

 

The 6 Mtpa-capacity development will have 48 concrete storage silos linked by an overhead conveyor system, with a rail loop able to take up to two trains of 135 cars per day.

 

The silos will be fed from an 81m cleaning tower, while unloading equipment will empty moving trains. Three ship-loading booms will be able to handle post-Panamax bulkers.

 

The first new grain terminal in nearly 50 years at Canada’s busiest port offers G3 access to markets in Asia, particularly Japan and China. G3 last year took a US$250M controlling stake in CWB, the former Canadian Wheat Board, which, until privatisation in 2012, ran Western Canada’s grain shipments.

 

CWB had facilities and rolling stock to rail crops east from the Prairies to the Atlantic Ocean. The new agribusiness, rebranded G3 Canada, brings together grain elevators in Western Canada, port-rail terminals in Thunder Bay and Trois-Rivières, a grain hopper fleet and grain facilities in Quebec – and the new West Coast rail-port development.

 

49th Parallel

 

Cargill and Richardson are also expanding capacity at Vancouver to handle 5 Mtpa of grain, up from 3.4 Mtpa. Cargill’s new rail terminal, with improved track and a railcar indexer, will facilitate more efficient unloading of the wagons from the Prairies.

 

Cargill plans to increase traffic from 125 to up to 200 cars per day – or 325 to 500 train trips a year. Richardson’s new grain storage silos are due this year.

 

Over the 49th parallel in the United States, Export Grain Terminal (a joint venture between Bunge North America, ITOCHU International and South Korea-based STX Pan Ocean) opened its US$200M terminal at Longview, Washington in 2012 – the first new grain export terminal in the US for three decades.

 

The Port of Longview has a US$15M project to expand its twotrack rail corridor, which serves the grain terminal, in order to ease congestion.

 

Despite the gloom for North American coal, plans are in place for a US$643M coal terminal at Longview, to export 44 Mtpa from Wyoming’s Powder River Basin to Asia. The BNSF railroad would transport the coal, adding eight trains daily to its main line.

 

However, Arch Coal, which holds a share in developer Millennium Bulk Terminals, has filed for Chapter 11 insolvency protection, amid plummeting stock values for US coal majors on Wall Street.

 

Coal prices have declined, while demand for imported coal has plummeted in Asia, as China and India have boosted domestic production. Arch and other would-be exporters in the US are struggling. Grain, not coal, looks to be king in the ‘New World’ of today.