Crisis on the Malmbanan railroad – LKAB is forced to cut production

Although traffic has resumed following this winter's major derailments on Malmbanan – the Ore Railway – stocks of iron ore products have not diminished. Soon, the track-work period begins, which means even lower capacity on the line.
"We are forced to cut production. Initially, we will reduce production by about one million tonnes per year. But the situation is so serious that, if we cannot run more ore trains, we will have to shut down more operations and lay off personnel," says Jan Moström, LKAB's President and CEO.

The derailments, which occurred in December and February, stopped traffic bound for the port of Narvik for 76 days, causing a revenue loss amounting to 100 million kronor per day. Now, iron ore products corresponding to more than 600 fully loaded trains are stockpiled in Kiruna and Svappavaara and there is no indication as to when deliveries to customers can be made.

"The problem is not excess ore stocks per se, but the fact that there is insufficient delivery capacity to meet our planned production leading forward. If no measures are taken, our stocks will continue to grow dramatically over the coming years. Planned maintenance work on Malmbanan reduces capacity even more, since traffic must be halted for long periods. If, together with Trafikverket and Norwegian BaneNor, we are unable to realise a major increase in freight capacity within the existing system, we will be forced to take even more drastic measures. In that case, one pelletising plant and the associated concentrating plant and mine production must be shut down. That would entail redundancies," says Jan Moström.

Risk for revenue loss of 30 billion

LKAB is considering closure in either Kiruna or Svappavaara, based on what would be least damaging to the company. Discussions with trade-union representatives concerning possible measures have been initiated. In terms of today's prices, the financial consequences of further production cuts would mean revenue losses amounting to 5 billion kronor per year, or about 30 billion kronor up to 2030.

"We have already been forced to restrict crude-ore transports between Svappavaara and Malmberget, thereby lowering production in Malmberget by one million tonnes per year, which corresponds to revenue of more than one billion kronor at current prices. Among other measures, we will also reduce the amount of external labour and transfer more work to our own personnel. It is a matter of reducing cots when production volumes drop, and of retaining as much of our own expertise as possible if we are forced to close parts of our operation. If we end up in that situation, we will need to be able to start up quickly again, as soon as transport capacity allows.”

In the coming years assured deliveries and stable income will be important for securing the necessary capital for investment in mining at greater depth, the transition to carbon-dioxide-free sponge iron and extraction of critical minerals. Over the past two decades LKAB has pointed to the risks associated with a shortage of rail capacity, the need for more maintenance on the existing system and the necessity for a double track, which would also benefit society in other ways.

"Over the past year we have invested nearly one billion kronor to strengthen our own means of managing the growing number of disruptions on the railway. Among other things, this includes the acquisition of more ore cars, an entirely new, extra locomotive workshop and an investment to retain wheel maintenance in Norrbotten."

Working hard to avoid redundancies

Assessments in Trafikverket's capacity analyses show that, despite measures planned up until 2030, capacity on the railway will be impaired between 2022 and 2030, when other traffic is expected to increase even more.

"This is not a situation that can be resolved by making a few simple changes. We will do everything in our power to avoid closing a pellet plant and laying people off. Together with Trafikverket and others, we will attempt to increase rail traffic, so that we can start to reduce the volume of stockpiled product, or at least stop building up more. If this is possible, we will have to turn over every stone to find ways of making it happen," says Jan Moström.

High hopes are placed on the outcome of efforts which Trafikverket has initiated to improve efficiency in track maintenance and planning. LKAB is prepared to help to optimise the flow of freight on  Malmbanan, based on prevailing conditions, and welcomes the possibility of including other operators and maintenance providers in this work. 

"We now await clear political decisions on the expansion of capacity, both in the short term and in the long range, in addition to what is already planned, to achieve the capacity that is needed on the line. It hurts to have to cut production at a time when customers are screaming for our products and we are earning well," concludes Jan Moström.

Contact: Anders Lindberg, Group Media Relations Manager at LKAB, Tel: 46 (0)980 783 55. E-mail:anders.lindberg@lkab.com