Australia and South Africa's Chinese Resource Export Supply Chains Tackle Choking Fit

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). The Chinese and Asian feeding frenzy for coal and iron ore is causing large-scale pressures along the supply chains in Australia and South Africa. In Australia, at the end of November 2004, there were 35 vessels moored off the twin terminal ports of Hay Point and Dalrymple Bay in Queensland waiting for cargo loads of coal. In South Africa, iron ore miner Kumba Resources (Pretoria, South Africa) was locked in negotiations with state rail company Spoornet to move on an urgent increase in capacity on the crucial Sishen-Saldanha ore export line.

The 'ghost fleet' off the Queensland coast was an unavoidable reminder to the Dalrymple Bay operator/owner, Prime Infrastructure (Brisbane, Queensland), of the pressures from coal producers, shippers, and governments to increase capacity to meet the demands of the China coal trade. In turn, reports Australia's Mining Monthly (AMM), Prime pointed the finger of blame for the empty vessels to the over eagerness of traders trying to take advantage of Asian demand without actually having any coal to ship.

The company's operations manager, Greg Smith, told AMM that there were more ships waiting offshore than there was contractual capacity. "We can over ship on their contracts up to terminal capacity, but to be able to over ship compared to the number of ships physically arriving at the port is impossible."

Prime has invested over $110 million in expanding the port's capacity to 60 million tons per annum (tap) and to go ahead with further expansion it needs long-term contact backing from Rio Tinto Coal Australia (RTCA) (NYSE:RIO ) (London, U.K.) who is playing hardball in saying that requests for increased capacity were made a year ago. Prime is studying a project that could increase capacity to 91mtpa at a cost of $460 million. This could be completed in two years from the start of construction and would bring a possible extra export income to Queensland of $2 billion. Looking at a 30-year viability for the expansion Prime is waiting for contractual backing from the coal miners.

RTCA has invested $170 million in expanding its Hall Creek mine to boost capacity from 6 mtpa to 8 mtpa and at the same says that it has been forced to stop work at Blair Athol, the largest export coal operation in Queensland, for several days to clear backlogs and then resumed operations at reduced capacity. Smith responds by questioning whether underground mines are meeting their production targets, as he still has spare capacity at the terminal.

Queensland sees 63 mtpa going out through its RG Tanna coal terminal at Gladstone in 2007. It is currently investing $130 million to increase Gladstone's capacity from 40 mtpa to 53 mtpa. The state government sees 7% annual growth in coal production over the next six years, raising the tonnage on the rail system from 143 mtpa in 2003-2004 to 202 mtpa in 2009- 2010. The state government is increasing spending on coal train infrastructure and has announced the formation of the Coal Infrastructure Coordination Group (CICG).

In South Africa, Con Fauconnier, chief executive of Kumba Resources, is putting the pressure on state rail company Spoornet (Johannesburg, South Africa), as he targets raising production at the Sishen iron ore mine by 19 million tons to 41 mtpa from the current 23 mtpa. He is looking for an additional three, 216 truck, trains on the Sishen-Saldanha line to keep up with demand from the Chinese market.

Along with other major users of Spoornet freight services, Kumba floated the idea of financing the new trains on a concession basis. Spoornet has committed to an investment of $2.5 billion in the upgrading of the major export traffic lines. These are Sishen -Saldanha for iron ore, Johannesburg-Durban for manufactured goods, agricultural produce and autos and Witbank-Richards Bay mainly for coal. Users on all these lines have asked for more trains and tighter schedules.

Spoornet did not react with any immediate enthusiasm to the train concessioning idea. They are reviewing the current contracts with Kumba, which have led to the rail company's losing over $175 million over a period of eighteen months. Up to now major users have found themselves talking past Spoornet, which is in the last stages of a radical management shake-up, after which users are hoping the speed and quality of communications will improve.

With South African ports also undergoing major development with state-of-the-art heavy capital, dockside-handling equipment being put in place, and cargo handling infrastructure expanding, Spoornet knows it has to come to the party as soon as possible. Some users have already found alternative permanent berths at Maputo in Mozambique, which is a short rail and road connection away from Johannesburg.

It is not only the Chinese and Asian growth market that beckons. India has growing industrial and commercial ties with South Africa adding to an existing close historical and cultural affinity. India is also looking for resources and for coal exports and other feedstocks. The two countries face each other across the Indian Ocean.

For both Australia and South Africa it's a case of please let those whistles blow and those foghorns sound soonest and at the loudest possible pitch.

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