SMM News: iron ore prices rose above $100 a tonne, hitting a 2014 high as investors bet that global supply tensions will greatly stimulate demand at a time when China's steel production is at a record high.
Benchmark spot iron ore rose 2.5 per cent to $100.35. Earlier, Singapore's main futures contracts rose 3.8 per cent, while mining stocks soared, Fortescue Metals Group Ltd. shares to their highest level since 2008.
Supply disruptions in Brazil and Australia, the big iron ore exporters, have sparked expectations that seaborne iron ore may be in short supply, leading to a startling rise in iron ore prices since 2019. At the same time, China's steel production hit an all-time high, supporting expectations of strong import demand that iron ore has soared despite concerns that the price of raw materials such as copper has fallen amid fears of weakening demand.
The trigger for the rise in iron ore prices was an accident in Brazil in January, when a dam at Vale (11.59,0.080.69%) collapsed, causing a number of mines to cut production. Operations everywhere are subject to close scrutiny. This week, state prosecutors advised Vale to issue a reminder that a structure at the Gongo Soco mine could be close to a breakpoint.
"part of the reason for this rise is that we are at risk of another dam collapse at Vale," Hui Heng Tan, an analyst at Marex Spectron Group, said by email. "this risk of proliferation will only make people more sceptical about whether the Brucutu mine in the same area will resume operation."
National production is likely to shrink by 10 per cent this year, and the outlook for 2020 is unclear, a senior Brazilian official said on Thursday. Sanford C. Bernstein&Co estimates that the world's top miners, including Vale, shipped about 283 million tons this quarter, down 10 per cent from a year earlier.
A key factor driving the rise in iron ore over the past three months has been the decline in iron ore stocks at Chinese ports, which fell to their lowest level since 2017. According to a report by First NZ Capital Securities Ltd. that includes Credit Suisse estimates, the tradable portion of the remaining inventory is likely to run out.
Still, Marex's Tan said the surge in iron ore may not be sustained because more supply is expected in the second half of the year.