Vale Production Cuts Bring Life Back To Iron Ore Markets

By Glenn Dyer | More Articles by Glenn Dyer

Iron ore prices jumped more than 4% on Tuesday after it became known that Vale, the big Brazilian iron ore exporter, had cut its March quarter production forecast by around five million tonnes, the second such cut in three months.

In its 2019 full year and December quarter production report, Vale said it has also cut its annual guidance for pellets to 44 million tonnes from 49 million and 41.8 million tonnes of pellets and trimmed its iron ore fines production outlook a range of 68 million to 73 million tonnes from a previously announced range of 70 million to 75 million tonnes.

The company blamed heavy rains in the iron ore producing states of Brazil in December and January and concerns at one of its suspect mine tailings dams which has seen a suspension of the Laranjeiras dam over stability concerns.

That suspension could last another month while investigations are carried out.

Despite the trim, Vale left its full-year forecast intact at a range of 340 million to 355 million tonnes, implying that the slide in the first-quarter production would be made up later in the year.

That compares to the 312.5 million tonnes produced in 2019 which was at the top of its previously reduced forecast (which in turn was slashed after the January 25 mine tailings dam collapse that flooded a wide area and left at least 270 people dead or missing.

With the continuing concerns about the impact of the coronavirus on Chinese economic activity and demand for steel (and therefore iron ore, coal, nickel, etc), Vale’s full-year confidence is ambitious, to say the least.

“The abovementioned estimates do not factor in any second-order effects of the Coronavirus epidemic, which at the time of writing seems to be accommodated through price changes only,” Vale said in its report.

Growing confidence about a more limited impact of the virus on China’s economy helped iron ore fines prices (for 62Fe fines delivered to northern China jump nearly 5% to $86.93.

That rise broke a 10% fall in the past two weeks, driven by fears about the coronavirus.

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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