System map (Photo credit: Wikipedia)
Plans for a new rail line in northern Quebec linking iron mines in the Labrador Trough to the port of Sept-Îles, Que., are still on hold as industry observers predict plummeting iron prices and the first global surplus of iron ore in over a decade.
In August 2012, CN Rail announced it, along with the La Caisse de dépôt et placement du Québec and six mining companies operating in the area, would conduct a feasibility study for an 800 km track between Ungava Bay on the north shore of the province, and the port on the St. Lawrence. There would also be a processing terminal.
The Labrador Trough is a 1,000 km deposit of iron ore running north-south through Quebec and western Labrador. There are scores of mining claims in the region, where the earth when mined is a Martian orange.
Canada is a minor iron producer, while China, Brazil and Australia are leaders. Global production is over one billion tonnes a year. Canada produces about 40 million tonnes.
Under the Plan Nord, launched under former Quebec premier Jean Charest in 2011, mining activities in the north of the province would be expanded. The $80-billion, 25-year, project would see iron production in the province go from 40 million tonnes a year to 100 million tonnes.
While the election of the Parti Québécois last September caused some initial concern about the future of the plan, the minority government has continued to promote it.
At an estimated cost of $4.9-billion, the line was to be in operation by 2016-2017. Desjardins Securities estimated that the new line would generate $1.3-billion in profits for CN.
The project was scrapped in February.
Mining companies had contributed funding to the study. CN Rail had already started the process of regulatory approval for the rail line with the Canadian Environmental Assessment Agency.
“We have invested considerable effort and resources towards the feasibility study, but in light of the circumstances, CN has concluded that it is not advisable to continue,” said Luc Jobin, executive VP and chief financial officer of CN said in a release when the project was cancelled Feb. 12.
Factors in the decision included a drop in the price of iron that will likely delay expansion of mines in the area, lower than expected production, and the “diverging needs” of the mining companies involved.
The project was already nearly shelved once, in July 2012, because of a lack of support from mining companies.
Currently, companies use another rail route and ship their product out of the Port of Sept-Îles. The federal government has invested $55-million in expanding the port.
When contacted last week for further details, CN spokesperson Mark Hallman said the situation hadn’t changed and the company had no further comment.
Iron prices plummeted last August, causing mining companies to suspend processing and Quebec expansion.
An economic slowdown in China has dampened demand for the most commonly-used metal in the world. Morgan Stanley analysts are predicting the first surplus of iron ore in a decade, and another drop in price.
In 2010, iron was trading at nearly $200 U.S. per metric ton. Last fall it dropped to as low as $85 U.S., and though it recovered somewhat in January, the price is expected to decline. As a rule of thumb, prices need to be over $100 U.S. to make production in the Labrador Trough viable.
“As a long term investor, the Caisse remains open to participating in infrastructure projects that will facilitate the development of Northern Quebec. … The Caisse is convinced that the long-term structural trends in the global economy will be favorable to the development of Québec’s natural resources sector,” said Michael Sabia, president and CEO of the Caisse in a statement last February.
The mining companies that participated in the study are: Hebei Iron and Steel Group partnered with Alderon Iron Ore; New Millennium Iron partnered with Tata Steel; Cap-Ex; Labrador Iron Mines and Cliff Natural Resources.
CN Rail is the largest hauler of iron ore pellets in North America.
Meanwhile, a dispute between shippers of hazardous materials and Canadian Pacific Railway over who should foot the bill in case of an accident is progressing at the Canadian Transportation Agency.
Canadian Pacific wants shippers of hazardous materials to bear the liability in all accidents. The lead company arguing against the change is Chemtrade Logistics Inc., a Toronto-based company that is one of the world’s largest suppliers of sulphuric acid and other chemicals.
“Things are progressing, as we understand, through the Canadian Transportation Agency. There has been some activity,” said Frank Reiner, president of the Chlorine Institute. The institute represents more than 200 chlorine producers worldwide, and nearly all of the producers in North America.
The case was filed Dec. 12, 2012. It revolves around a section of the Canada Transportation Act that gives the transportation agency authority to decide if terms or charges from transportation companies like CP onto shippers are unreasonable.
CTA has responsibility for resolving disputes between shippers and transportation companies, and on appropriate fees. It provides arbitration and mediation services, and as a quasi-judicial body can issue formal decisions.
Nearly 25 per cent of chlorine produced in North America is shipped by rail, he noted. In February, the Chlorine Institute filed a brief with the CTA in support of the shippers.
“It’s a big unknown in their business, and it’s a burden that’s really not fairly assessed to them. They have no control over how the railroads operate on their lines. Therefore they shouldn’t have responsibility,” said Mr. Reiner.
Chlorine is used in a variety of everyday objects, from building materials, medical equipment to cosmetics and bullet-proof vests. It’s shipped by rail in liquefied form in re-enforced cars that are maintained by the chlorine producers, explained Mr. Reiner.
When contacted for comment, Canadian Pacific spokesperson Ed Greenberg said because the dispute is before the CTA, the company has no comment.
Mr. Reiner said that there have been attempts by other rail companies in the U.S., including Union Pacific and RailAmerica to shift liability onto the companies who use their services.
“This particular attempt was one of the most extreme, shifting all liability,” he explained.
In the U.S., shippers have filed a complaint with the U.S. Service Transportation Board.
If the shippers lose the case at the CTA, Mr. Reiner said that there are few alternatives to using CP.
“There would be some incentive to go to other modes. That’s certainly not something that’s considered desirable. There’s really very little ability to substitute,” he said.