Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port, which were at $47.5-49.5/mt CFR last week, have remained unchanged since last Friday and have started this week at $47.5-48/mt CFR. While import iron ore prices in China have continued their downtrend, ore inventories at Chinese ports have continued to rise. As of November 2, inventory of iron ore at 33 major Chinese ports amounted to 82.24 million mt, up 1.01 million mt or 1.24 percent compared to the inventory level recorded on October 26, as announced by China's Xinhua News Agency. Chinese iron ore buyers are adopting a wait-and-see stance, since finished steel demand in the country is not expected to recover in the short term.
On Thursday, November 5, an explosion occurred at an iron ore waste dam located in Mariana in Brazil’s Minas Gerais state, owned by pellet producer Samarco, the joint venture between Vale and BHP Billiton. Samarco said operations at its Germano iron ore mine, which has an output of 30 million mt of iron ore pellets per year, has been halted due to the dam burst. However, it is not clear how long the mine will remain closed. Commenting on the accident, Citigroup has stated that iron ore will probably be near $50/mt by the end of the year rather than tumble to $40/mt as the supply disruption may boost prices. The benchmark iron ore price will resume a downtrend to below $40 when sizable cuts to China’s steel output occur next year after the Lunar New Year, Citigroup said.
Meanwhile, according to Paul Young, a Sydney-based analyst at Deursche Bank, the iron ore mine in question at Minas Gerais may be closed over three years, which will add further pressure to BHP’s cash flow, growth and safeguarding of progressive dividend. The iron ore supply of Samarco’s mine was equal to two percent of global iron ore supplies and the mine in question has played an important role in the profitability of Vale and BHP Billiton.