Iron Ore Prices Rip Higher On Supply Crunch Fears

The shortage of iron ore in China must be starting to hurt – otherwise why would global iron ore prices surge past $US110 a tonne when Vale, the stricken Brazilian miner, says it is moving to dry ore processing at some of its impacted mines – a move that could see millions of tonnes of ore back on world markets by the end of this year or early 2020.

Vale’s news was revealed in briefings on Wednesday in Brazil with investment banks and analysts.

The news was in the market yesterday but iron ore prices as measured by the Metal Bulletin’s Index jumped more than 3%, or $US3.56 a tonne, to $US110.16 a tonne for 62% Fe ore delivered to northern China.

That’s the highest price since April 2014. Australian miners are sending as much ore as possible to China to make up for the shortfall from Vale and to exploit the high prices. Shipments in May to China were the highest for 11 months, but Rio especially is running down stocks to keep up the pace.

BHP and Fortescue (full year) and Rio (half year) rule off their books on June 30 for what could be a banner year for their iron ore operations thanks to the price surge since last November which kicked up considerably in the wake of the January 25 disaster in Brazil.

Traders said the driving factor was what they quaintly described as “persistent bullishness” but the reality is that with a looming shortfall from Rio in July and August in its shipments of its Pilbara fines and lump ore, the Chinese mills are trying to grab as much ore as possible to make up for the unknown shortfall and to keep landside stocks in China (at mills and ports) above the 130 million tonnes or 230 day minimum.

The price of 58% Fe ore – the basic product of Fortescue Metals surged past $US100 a tonne to $Us101.18 – that is more than 62% ore was priced at a few days ago.

That was a 3.5% rise and will likely help the Fortescue share price towards the $A9 mark on the ASX today.

Vale made it clear in its briefing that it intends to start production of iron ore using dry processing at some of the sites that were closed following the failure of a tailings dam at the Córrego do Feijão mine on January 25.

Vale is currently using crushing and screening processes at the Brucutu mine at a rate equivalent to 8-10 million tonnes of ore a year (the mine’s total capacity is 30 million tonnes and is the biggest in Vale’s southern complex of mines).

Vale is now seeking permits to do the same at its Timbopeba, Alegria, Vargem Grande, and Pico mines, according to reports of the meeting between CEO, Eduardo Bartolomeo and chief financial officer Luciano Siani and analysts on Wednesday.

Analysts say this could potentially add 30 million tonnes a year of iron ore to the company’s output.

That won’t happen immediately as approvals have to be obtained (and the Brazilian authorities will give Vale a hard time in doing so) and the dry processing facilities will have to be constructed which will still take months to achieve.

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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