Supply Shock For Iron Ore As Vale Declares Force Majeure

By Glenn Dyer | More Articles by Glenn Dyer

Upwards of 70 million tonnes of Brazilian iron ore looks like being off the market from now on – news that is likely to spark a surge in global prices.

The global iron ore market has been thrown into confusion by the move by Brazilian Vale to declare force majeure on some iron ore and iron pellets contracts after a court-ordered halt to a mine responsible for nearly 9% of its output following a dam burst which likely killed more than 300 people.

The move, along with the decision by the company to shut1 0 dams at its mines and a subsequent court order extending the closures to include the company’s second-biggest mine called Brucutu in the state of Minas Gerais, could take upwards of 70 million tonnes of iron ore off the global market for an unknown length of time.

A court in Belo Horizonte, the capital of Minas Gerais, stopped Vale from using eight tailings dams on February 4, with Brucutu being the most-affected operation.

The environmental secretariat of Brazil’s southeastern Minas Gerais state later has suspended a license granted in 2015 for Vale to operate the Laranjeiras tailings dam, connected to the Brucutu iron ore mine.

Annual output could fall by as much as 30 million tonnes because of the restriction. This adds to a production cut of 40 million tonnes a year after Vale decided to decommission ten dams that operate through the upstream method, which is considered riskier. The upstream tailings dam collapsed on January 25, triggering the latest disaster.

The move has seen some iron ore spot prices rise past $US88 a tonne – trading this week has been restricted by the Lunar New Year holiday, especially in China, the world’s major buyer.

The force majeure on some iron ore and pellets sales contracts came after a court on Monday ordered it to stop using eight tailings dams, including one affecting the production of about 30 million tonnes of iron ore output per year.

The force majeure declaration is the latest sign of how the January 25 disaster at the tailings dam at Vale’s Corrego do Feijao iron ore mine – which killed 142 people, with 194 still missing – is hitting the wider mining industry. Nickel prices hit a nine-month high yesterday. Vale is the world’s biggest miner of the important steelmaking metal.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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