False Alarm Over Vale Restart

By Glenn Dyer | More Articles by Glenn Dyer

Don’t believe the alarmist nonsense around the markets (including silly figures in Fairfax Media website reports during the day) about the impact of a court decision in Brazil which will see a key iron ore mine of Vale allowed to return to production.

Vale says its Brucuti iron ore mine will resume operations later this week after it was closed when tailings dams burst in January, flooding the town of Brumadinho in Brazil’s Minas Gerais state and killing 300 people.

It means about 30 million tonnes of iron ore back will come back into the market and Australian investors panicked like headless chickens yesterday selling off BHP, Rio Tinto, and Fortescue shares and wiping more than $5 billion from their market values.

BHP shares fell 2.7% to $38.30 on the news, Rio shares fell 4.7% to $96.40 and Fortescue shares were hit hardest of all with the price down 8.2% to $7.43.

If only local investors had gone and found the Vale announcement – there was some important news offsetting that revelation. Had they read the statement they would have found that because of heavy rain in the north of Brazil, the re-opening of the Brucuti mine won’t make any difference to vale’s forecast 2019 iron ore output.

It will remain around 50 million tonnes down on a year ago.

Here’s what Vale said in its announcement:

“However, heavy rains in São Luís do Maranhão in March and April affected shipments of the Ponta da Madeira port, the railway transportation at EFC, thus impacting the production volumes at the Northern System.

“As a result of both events, Vale reaffirms its 2019 iron ore and pellets sales guidance of 307-332 Mt, as previously announced, and informs that its current sales volume expectation should stay around the middle of the range.”

So the global iron ore mine will remain about 40 to 60 million tonnes in deficit this year compared to the start of year forecasts. BHP and Rio will export around 14 to 16 million tonnes less and Vale the rest.

What this really means is that without the re-opening of the Brucuti the global shortfall this year would have been even larger because of the heavy rain in the northern areas of Brazil where Vale’s richer and more productive mines are based. The impact of the rain on vale’s northern system of mines and ports hadn’t been reported.

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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