The boom in Western Australia’s iron ore industry has flowed on to the railcar manufacturing industry, which has enjoyed rapid growth in recent years, but two developments have cast a cloud over the sector’s prospects.
The boom in Western Australia’s iron ore industry has flowed on to the railcar manufacturing industry, which has enjoyed rapid growth in recent years, but two developments have cast a cloud over the sector’s prospects.
Fortescue Metals Group, which is developing a $3.5 billion iron ore project in the Pilbara, is planning to buy its railcars in China.
And Bradken, which is one of the main suppliers in Australia, is developing a new manufacturing plant in China.
These developments mark a shift from the industry’s traditional pattern, whereby local railcar manufacturers have met the needs of the iron ore industry.
United Group has been the major supplier to BHP Billiton Iron Ore, manufacturing most of its iron ore wagons at the former Goninan facility in Bassendean.
United announced last week it had won a $70 million order for 480 heavy-duty iron ore wagons, on top of the 2,000 it has already produced for BHP.
Bradken is the main supplier to Rio Tinto Iron Ore, delivering its 3,000th iron ore wagon to Rio earlier this year.
This total included 740 wagons supplied during the past 12 months from its manufacturing facility in Newcastle.
The third big player in the railcar industry is Queensland manufacturer Downer EDI, which has little exposure to the iron ore industry but has achieved big success in WA as the supplier of Transperth’s electric railcar fleet.
The state government announced last week that it was entering negotiations with Downer to buy a further 45 railcars, at an estimated cost of $150 million.
FMG is bypassing local suppliers, disclosing last week in a construction report it has signed a conditional $83 million deal with China Southern for its ore wagons.
Company secretary Rod Campbell said the purchase was subject to quality testing, which was under way using prototype wagons.
He said the selection of China Southern was based on several criteria, including price and its ability to supply on a timely basis.
China is likely to become a more prominent supplier, with Bradken’s decision to establish a component manufacturing factory in Xuzhou and reserve land for wagon building and foundry facilities.
Bradken managing director Brian Hodges was very matter-of-fact when discussing the prospect of shifting the manufacture ore wagons to China.
“If they are more competitive there, we will certainly do them there,” he said.
While United and Bradken manufacture railcars in Australia, the reality is that their railcars incorporate a substantial portion of imported components.
For instance, Mr Hodges noted that United used to buy bogies from Bradken but now imported them.
Imports are even more significant in the locomotive sector, which is dominated by United and Downer.
United recently signed a $58 million contract to supply 15 locomotives to FMG, while Downer has supplied 23 locomotives to BHP in the past two years. In both cases, the locomotives are manufactured in North America by GE and Electro-Motive Diesel respectively.
