Vale issues likely to buoy iron ore prices in mid to long run

SHANGHAI, Feb 14 (SMM) – Shorter supplies after the dam accident at a Vale mine in Brazil, and higher downstream demand at the end of the first quarter are likely to bolster iron ore prices in the medium to long run, SMM forecasts. 

In the short term, however, iron ore futures and spot prices are expected to moderate after prices rose this week. Speculative sentiment buoyed prices of iron ore earlier this week, after trading resumed from the Chinese New Year holiday. 

On Wednesday February 13, market talk suggested that Vale, the world’s largest iron ore miner, had declared to some Chinese customers that the company will be unable to fulfil its export contracts due to unforeseen circumstances. A Vale mine that accounted for nearly 9% the company's output had closed after a tailings dam collapsed on January 25.

The closure is likely to impact Chinese monthly imports of some 800,000 mt of Brazil’s iron ore concentrate, and 220,000 mt of pellet imports, SMM assessed from customs data.  

Data from China Customs showed that imports of iron ore concentrate stood at 89 million mt in 2018, with Brazilian cargoes accounting for 11%. China imported some 18.79 million mt of pellet last year, of which 14% came from Brazil. 

A domestic steel mill that has iron ore contracts with Vale had not received any force majeure notice as of Thursday February 14, an SMM survey found. It expects imported iron ore prices to rise to around $80/mt as supplies are likely to fall short in the coming months. 

When restocking raw materials after CNY, another steelmaker told SMM that higher iron ore prices lifted its overall costs to some 300 yuan/mt and narrowed profits. Some mills said they would turn to alternatives such as steel scrap or lower-grade ore.