Markets: Aurizon's golden hue

There may be no better way to play on the world’s demand for Australian commodities than through the rail operator Aurizon. With 2670 kilometers of heavy haul rail infrastructure from Cairns to Perth, the former QR National forecasts it will be busier than ever in the next 12 months.

Aurizon does not just haul minerals. It transports agricultural and general freight services, not only by rail but by road too. But it is coal haulage that has made its reputation, especially in the coal rich areas of central Queensland. Yancoal expects global coal production to rise through this year and next. Aurizon expects the same increase in coal mining in areas where it operates.

In 2013 the company accounted for 42 per cent of all coal transport on railway lines in Australia, up from 38 per cent in 2012. Aurizon’s market share may grow after it won 120 million tonnes per annum of new coal freight contracts with companies including Rio Tinto, Glencore Xstrata and Graincorp.

In its 2014 financial year Aurizon expects coal haulage to total between 200 million tonnes and 205 million tonnes. In 2013 the company transported 193.7 million tonnes.

In Western Australia Aurizon is the biggest transporter of iron ore outside the Pilbara. It plans to haul 30 million tonnes of iron ore in 2014, up from 24.7 million tonnes in 2013.

While many fret over the direction of commodity prices, demand remains robust, at least from Australia’s largest buyer. The Bureau of Resources and Energy Economics and Westpac say despite evidence of a slowing Chinese economy, the country’s appetite for raw material output remains high. Imports by China from commodity producing countries are rising by 7.6 per cent, according to BREE and Westpac. Energy use remains high, good news for thermal coal sellers, along with metals use.

This year Aurizon shares are up 21 per cent. The stock is not cheap. It trades at 18.8 times forecast earnings. Still, it is a darling with analysts, attracting 10 buy recommendations as opposed to four hold and two sell recommendations. But with few companies expecting better demand for their services in the next year, Aurizon may be one of the stocks some flock to.