New Vale Cuts Push Iron Ore Above 2013 Highs

Iron ore prices hit new seven-year highs on Wednesday on emerging fears of a shortage in early 2020.

The fears were sparked by the surprise move by big Brazilian exporter, Vale, to trim its 2020 production estimate for a third time this year and set a smaller than expected first estimate for 2021 output.

The news saw the price of 62% Fe fines delivered to northern China hit $US136.29 a tonne, up to $US4.16 or 3%. That took the gain this week to more than $US6 a tonne or 5%.

That’s the highest iron ore prices have been since November 2013 and the news will boost the share price of BHP, Rio Tinto, and Fortescue on the ASX today.

Vale lowered its iron ore production guidance for 2020 to 300-305 million tonnes from 310-330 million tonnes due to the supply disruptions seen throughout the year, the company said on Wednesday.

Previously, the company was expecting to deliver the bottom end of the estimated range for 2020, given adverse weather conditions at the start of the year and the impact of the COVID-19 pandemic on mines and exports.

At the same time, the company has experienced delays in bringing back production capacity halted in the wake of the January 25, 2019 mine dam wall disaster.

Vale had originally set 2020 production guidance at 340 million to 355 million, so the outcome will be 14% lower than originally forecast at the start of 2020.

Because of the January 25 disaster, Vale’s iron ore output fell to 302 million tonnes last year from a record 384 million in 2018.

Now the first estimate for 2021 of 315 million to 335 million tonnes is a little on the low side as it is around the same level as the second estimate for this year.

Adding to fears of a shortfall in early 2021 was a 0.4% dip in Brazilian iron ore exports to 29.15 million tonnes in November.

Iron ore exports from Brazil fell by a modest 0.4% year on year in November, the country’s ministry of economy said on Tuesday December 1.

That ended two months of rising shipments.

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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