Iron ore miners could get a lot more profitable in the near future. Granted, iron ore prices might pick up, which would help in boosting profitability. And countries fuelled by infrastructure spending — namely China — will continue to consume boatloads of iron ore.
But this has little to do with the price of iron ore and more to do with how it’s transported.
The mining industry has already tried to transform itself with driverless trains hauling commodities from mines to ports. But due to the complexity of the technology, it’s been nothing but a dream …until now.
As reported by The Australian:
‘…a successful test run by Rio Tinto suggests the automation strategy may finally have shifted up a gear.
‘On Monday, Rio Tinto (RIO) said it had completed a pilot run spanning nearly 100 kilometres with trains operated by individuals in an air-conditioned control room hundreds of kilometres away. The milestone puts it on track for a late-2018 commissioning of the so-called AutoHaul project, which has been dogged by software problems and repeated delays. Until now, Rio Tinto’s trains have run about half of the miles across its Pilbara network in autonomous mode, albeit with drivers still on board to oversee operations.
‘Driverless mining vehicles promise greater efficiency for an industry that continues to target costs even as it pulls out of a tough few years in the wake of a slump in commodities prices. Rio Tinto and others have bet hundreds of millions of dollars on being able to control trains, drill rigs and massive trucks from remote offices. Rio Tinto said it has already seen the benefits from AutoHaul in increased train speeds and fewer stops that have cut more than an hour from average journey times.’
Imagine that: A driverless train running 24/7, safely moving thousands upon thousands of tonnes of iron ore, coal and copper to ports.
Increased Volatility for Various Commodities?
Yet what it could also do, if miners aren’t careful, is increase volatility for various commodities. What happens to the price of iron ore when China has huge stockpiles of steel? They go down.
So it’s in a miner’s best interest to limit supply in order to increase profit margins. However, this doesn’t always happen.
Another way to just increase revenues, and hopefully profits, is to keep selling. Even if the price goes down, as long as miners are operating above the cost of production, they’ll continue to sell.
I suspect that, with the ability to increase supply and efficiency, as well as cost-cutting, prices of iron ore, coal and other commodities could slip in the near future. Whether cost-cutting will make up for the price declines remains to be seen.
Junior Analyst, Markets & Money
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