Following the lack of any price movement last week amid stagnant trading activity in the global market due to the Chinese New Year holiday, prices of ex-Australia iron ore with 62 percent Fe content for delivery to China’s Qingdao port have increased by $5.1/mt on Monday, February 11, starting the current week at $89.7-90.8/mt CFR China, in line with iron ore futures which have begun the week with an eight percent rise, both as compared to the closing price at the end of last week.
Since a Brazilian court ordered Vale to halt operations at its Brucutu iron ore mine, an annual capacity of 30 million mt of iron ore will be deactivated, which means that iron ore supply in the global market will continue to contract in the coming period. According to market sources, following Vale’s deactivation of an annual capacity of 40 million mt, this additional production halt at the Brucutu mine will cause iron ore prices to increase faster and reach $100/mt in the short term. Indeed, Vale has declared force majeure for several iron ore and pellet contracts that it had concluded before the recent dam collapse in Brazil. However, the volume of iron ore in these contracts has not been made public.
Following the court decision relating to the Brucutu iron ore mine, similar production cuts may be announced for other iron ore mines and other iron ore producers in Brazil, which means that iron ore production will be impacted substantially. Since the volume of iron ore being supplied by Brazilian mines to the global market cannot be compensated for by other suppliers in the short term, global iron ore prices are expected to increase sharply in the coming period.
Amid the expected rise in iron ore imports in China and India this year and the tightness of iron ore supplies in the global market, iron ore demand will likely in the market will likely face a shortfall of 10 million mt in terms of supply. Also, the higher iron ore prices will likely continue to cause Chinese steel producers’ profit margins to shrink further.