Australia's new railway or iron ore prices fell?

The Australian media reported on the 29th that if a new railway transportation line is built in the iron ore-rich Pilbara mining area in Western Australia, the price of iron ore may fall.

UBS analyst Green Laocock warned that Australian mining tycoon Gina Reinhardt’s Hancock Exploration Company is exploring the construction of a railroad link to the Roy Hill Iron Ore owned by Reinhart. The QR National Group in the area of ​​facility construction also joined forces with Atlas Iron Mines Limited and Brockmann Mining to explore the possibility of building a new railway network in the same area.

In his analysis report, Lakoc pointed out that it is obviously not economical to build two railways or two railway systems in the Pilbara area. Even if only one railway is built, it is only at the same time that it connects the Roy Hill area and Atlas. It is only economically viable under conditions of mines owned by Sri Lanka and Blockman.

He also said that once the railway construction is successful, the iron ore production capacity in the Pilbara will be released and the supply of iron ore will increase significantly. In addition, giants in the mining industry, such as Rio Tinto, BHP Billiton, Fortescue Metals Group, are all expanding production. The combination of these factors will further reduce iron ore prices and make new projects economically infeasible.

“The possible increase in output of Atlas, Hancock, and Blockman will have a negative impact on the iron ore trade, which will eventually lead us to the view that the development of the railway system will in fact reduce profitability. Making these projects less profitable. The companies that are joining now may end up on the highest point of the cost curve," said Laocock.

The manager of Atlas Iron ore Co., Ltd. Ken Brinsden was not worried about the warning from the Swiss bank. He defended the company’s plan to build a railway, saying that opportunities often arise when exploring new possibilities. UBS forecasts that long-term iron ore prices will be around $72 per tonne. The bank’s rating for Rio Tinto, BHP Billiton and Fortescue is “buy”, while Atlas’s rating is “neutral”.