The sharp fall in iron ore prices to well under $US80 a tonne received a lot of publicity and analysis, but it was a different case when prices regained that key support level a day later after Vale, the big Brazilian miner, downgraded its 2019 iron ore and pellets sales estimate and indicated that 2020 might not see as big a rebound as expected from the fallout from the January 25 mine tailings dam wall tragedy.
According to the Metal Bulletin’s Fastmarkets index seaborne iron ore prices rose above $US80 a tonne delivered to northern China.
Futures markets saw big gains on the news of the Vale downgrade and a weaker impact of winter production restrictions (to cut smog levels).
The Fastmarkets iron ore index for 62% Fe fines, rose $US2.50, or more than 3% to $US81.48 a tonne, rebounding from the nine-month lows hit on Tuesday just under $US79 a tonne
The big news was the cut Vale made to its 2019 iron ore and pellets sales target. Previously it had been in the range of 307 million to 332 million, with the likelihood of the actual figure being closer to the bottom of the range.
On Tuesday Vale narrowed the production and sales target to 307 million to 312 million tonnes, meaning it has effectively lopped 20 million tonnes from its forecast sales this year.
Vale said the cut was made “given more visibility on sales expected for 4Q19, which should range between 83 – 88Mt”.
The company then warned last month the Itabiruçu stoppage and revision of its sales plan meant iron ore and pellet sales were expected to be “between the lower and the midpoint of the [307-332Mt] range”.
Yesterday it trimmed this further to 307-312 million tonnes, “given more visibility on sales expected for 4Q19, which should range between 83 – 88Mt”.
It also said production and sales in the first quarter of 2020 were expected to range between 70-75 million tonnes “due to seasonality, the gradual and safe return of operations and in line with its margin over volume strategy.”
At the bottom of the range, it would a small rise on the 67.7 million tones of ore and pellets sold in the March quarter of this year when the January 25 disaster’s full impact was felt. At best it could be an 11% to 12% increase which is not that convincing a recovery.
In effect that’s a cut of around 20% from the expected production level this quarter. If Vale makes the 75 million tonne market for the March quarter, it will have to produce and sell close to 90 million tonnes a quarter for the nine months of April through December 2020.
That might see it regain the 2018 figure of 384.6 million tonnes.
Vale had forecast iron ore production guidance of 400 million for 2019, at its Vale Day presentation in London last December. That was around five weeks before the January 25 disaster that killed or left missing close to 300 people.
Vale says it will provide another estimate on December 7.