World iron ore prices are poised to make a run back over $US90 a tonne after more doubt was cast on the level of Vale’s 2019 production and exports and for the second time this year, Rio Tinto declared force majeure on exports from one of its WA loading facilities in the wake of Cyclone Veronica.
The Rio declaration will last for an unknown number of days and will involve an unknown amount of ore – it comes at a time when market nerves are volatile because of the steady run of bad news from Vale in the wake of the January 25 mine disaster in its southern mining complex.
The federal government’s latest resources and energy report estimates the disaster and problems with other mine dams could see Vale’s exports fall – in total Brazil’s exports could fall by 46 million tonnes this year according to the report.
But late last week Vale put its iron ore losses at up to 70 million tonnes of lump and fire ores (there is a small Brazilian export operation run by Anglo American that produces 26 million tonnes of ore a year but has had an unreliable history).
Vale’s chief financial officer Luciano Siani said on Thursday (March 28) in a conference call with analysts that the company now expects iron ore sales volumes in 2019 to be cut by 50-75 million tonnes, from a previously undisclosed target of 382 million tonnes of sales this year.
That includes around 11 million tonnes of missed pellet exports (Most of Vale’s high-quality pellets are produced from its southern mines where the disaster happened and many of the closed mines and their dams are located).
Siani told analysts that 2019 sales volumes would be reduced to 307-332 million tonnes, compared with 365.6 million tonnes of iron ore and pellets in 2018.
The new estimate for 2019 compares to an earlier target of 390 million tonnes. At best the shortfall could be between 50 and 60 million tonnes this year, tapering into 2020.
But there could be more cuts with news late last week that four other mine dams were closed and evacuations carried out because of fears the dam walls were unstable and could collapse.
These reports have seen the restart of the 30 million tonne a year Brucutu mine, Vale’s largest in Minas Gerais state, delayed. it was supposed to gear up to restart production last week after being closed for more than a month.
The confusion over Vale’s production and exports and Rio’s declaration saw iron ore prices rise on Friday, with the 62% Fe iron ore index price (including freight and insurance) rise $US2.13 or 2.5% to end at $US86.81 a tonne.
The Australia iron ore price (62% iron content on a fob or free on board basis – before freight costs) rose by 8.4% year-on-year to average $US75 a tonne in the March quarter of 2019, a four-year high, according to data from the federal Department of Industry’s latest resource bulletin.
The March quarter rise came off the back of a rebound in later 2018 and the January 25 disaster in Brazil and then mine dam closures (and production cuts) have pushed world iron ore prices (for 62%) or over $US90 a tonne briefly and over $US a tonne for 65% Fe ore produced by Vale.
Including freight and onboard costs (on a CFR basis), the Metal Bulletin Index rise more than 19% in the first quarter from their close at the end of December of $US72.73 a tonne.
The sharp rise in iron ore prices in the quarter and expectations of more to come saw BHP Group shares rise 2.3% to $38.49 last week, Rio Tinto shares were up 4% to $97.91 and Fortescue Metals Group closed at $7.11, up 7.9% for the week.
For the quarter BHP shares were up 12.45%, Rio shares leapt nearly 25% and Fortescue shares were among the best performers with a gain of just on 70%.
The latest forecast from the Federal Department of Industry’s quarterly resources and energy quarterly has lifted the Australia iron ore price (on a FOB or free on board basis) to average US$67 a tonne in 2019, following significant Brazilian mine closures — due to the Brumadinho dam collapse in that country.
That’s up from an average of $US62.60 in 2017-18. The 2018-19 budget forecast was $US55 a tonne, hence the expected rise in tax revenues in tomorrow night’s budget.
On Friday the Department of Industry, Innovation and Science’s resources and energy March quarterly report forecast a $74 billion this financial year with record export volumes, forecast to reach 847 million tonnes in 2018-19 June 30 year.
These figures may be tempered slightly by four to five lost shipping days from Pilbara ports because of cyclone Veronica last week. That could see shipments fall by around 12 million tonnes, worth more than $A1.2 billion.
But there will be additional losses after Rio Tinto declared force majeure on Friday on shipments from one of its Cape Lambert A terminal in the Pilbara for an unknown period of time. The facilities were damaged during Cyclone Veronica.
That terminal has a capacity of more than 85 million tonnes of ore a year. It is the second time this year that Rio Tinto has been forced to declare force majeure at Port Lambert.
In early January ore screening facilities were damaged by a fire and a number of days exports were lost. Rio says it will detail these losses in its March quarter production report on April 16.