Brazilian Headaches Spur Iron Ore Price Past $100

Global iron ore prices have topped the $US100 a tonne level for the first time in 10 months on Friday on growing concerns over supplies from Brazil as the COVID-19 pandemic grows in the iron ore producing regions in the north and south of the country.

A big rise on Friday of 5.4% – the second time the price has risen by more than 5% on successive Fridays – has left the price up more than 24% in May.

Metal Bulletin data showed the price of 62% Fe fines delivered to northern China rose 5.4% to $US102.39, the highest price since last August. The price jumped more than 11% last week and pushed iron ore prices into a bull market (a 20% plus rise from its last low).

Brazil’s giant miner, Vale is at the centre of the concerns (there are a couple of smaller exporters such as Anglo American and CSN, a local steel/minerals group).

Reports from Reuters at the weekend confirmed that Vale managed to reverse a court decision closing mines in the south (where the January 25, 2019 mine wall tragedy happened) because of rising numbers of COVID-19 infections and in the north where infections are also rising. That’s where Vale’s highest quality iron ore is produced and exported.

As well the Metal Bulletin reported that; “Sources said they had heard of hundreds of COVID-19 infections at Vale’s mines in Itabira, in the southern state of Minas Gerais.”

Other media reports said 200 local employees in Itabira have tested positive for coronavirus.

Separately an outbreak in the north in Para state, where three Vale mines – S11D, Serra Norte, and Serra Leste – are located has claimed 64 lives in the nearby town of Parauapebas alone, Reuters reported.

These mines produce much of Vale’s high quality 65% fines bound for the Chinese and European markets. Capacity of the three mines ie being expanded from 230 million to 240 million tonnes a year by 2022.

As well starting on Saturday, Vale and the mayors’ office began a joint program to test some 100,000 people in Parauapebas.

Reuters reported that in a city of almost 200,000 people, Parauapebas had 1900 coronavirus cases as of Thursday, more than four times the average rate in Brazil.

In a filing with corporate regulators Vale SA said on Friday that its Itabira iron ore mining site was ordered shut under an order from the labor authorities, but that it was able to immediately reverse that order after obtaining a favourable court injunction.

Vale said the injunction determined maintenance of all activities on the site, adding since the start of the COVID-19 outbreak, its priority is to guarantee the safety of its workers.

Fears about the security of Brazilian exports has been rising for the past three weeks, helping push global prices higher and adding to fears of a shortfall in global supplies after heavy rain and floods in January and February slowed shipments.

Brazilian exports fell 21% in the first quarter from a year ago and Vale has already cut its 2020 export forecast by 18 million tonnes.

Chinese steel mills have been forced to run down their stocks which are down more than 20% from a year ago, to around 110 million tonnes, the lowest since 2016.

That has helped the Chinese government move to offer state help to develop new domestic mines to maintain local supplies at 20% a year.

The iron oxide content of Chinese iron ore has fallen sharply in the past decade, forcing steel mills to import more and more higher quality ores from Australian and Brazilian mines operated by the big four – Rio Tinto, BHP and Fortescue metals in Australia and Vale in Brazil.

The 24% surge in iron ore prices has seen BHP shares rise 16% in May, Rio shares up 13% and Fortescue shares jump nearly 27%. Vale shares are up more than 22%. The rises in the BHP, Fortescue and Rio shares in may was much faster than the near 10% rise in the ASX 200.

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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