Miners upgrade logistics infrastructure to meet demand

With commodity prices set to stay high, miners want to capitalize

By Dave Hannon -- Purchasing, 4/16/2008 11:40:00 AM

With demand and prices for commodities like coal and iron ore high in many global markets, mining firms are working to upgrade their rail infrastructure in an effort to get more material into the market.

Brazilian mining giant Vale said this week it will spend $12 billion to expand the logistics capacity at several of its iron ore mines in Brazil (including the Carajas mine) by 50% by using larger trains. According to a Reuters report, the new trains will have 330 cargo cars hauling iron ore from the mine, a big jump from the 220 cars currently used.

“This is just the first step. We're going to double the size of Carajas," Mauricio Spinelli, Vale's director of logistics, told reporters at a new conference.

Vale recently concluded its iron ore pellet price talks with German steel giant ThyssenKrupp Steel and ArcelorMittal, both of which agreed to an 86.67% iron ore price increase. With iron ore prices set to remain high, Spinelli told the Estado news agency Vale plans to buy 12,900 rail cars and 245 locomotives.

China is also working on a plan to upgrade its railroad infrastructure to get more coal out of its inland mines. China’s plan to improve its rail infrastructure would bring 70% more coal from its inland mines to steel plants and other coal using sites in China. Reuters reports that at a recent conference, Dong Yan of the Institute of Comprehensive Transportation of National Development and Reform Commission, said "The tightness in coal supply is mainly caused by the lack of capacity to move coal out. The railway transport remains a key restriction against coal production and consumption in China. Coal producers have to just leave coal in their stocks."

China’s demand for coal is so high that it has been increasing its imports and U.S. coal miner Peabody said this week it is planning to supply coal to China. Coal analyst Jeremy Sussman of Natixis Bleichroeder said China has been importing more in the last year, while exports had fallen to just 2 million tons last year.