Seaborne iron ore is expected to fall into a larger deficit this year as a result of disruptions at Vale SA’s operations, according to S&P Global.
The latest S&P Global analysis revealed the forecast, citing Vale’s company report which revealed its total iron ore production had fallen by 11 per cent to 73 million tonnes year on year in the first quarter of 2019.
Data from Panjiva, the supply-chain research unit at S&P Global Market Intelligence, shows that Vale’s exports of iron ore from Brazil have fallen by 34 per cent to 16 million tonnes year over year in March.
This is the lowest level since 2014, which comes as a consequence of multiple mine closures.
S&P Global Market has lowered its Australian and Brazilian iron ore production expectations by 16 million tonnes and 54 million tonnes respectively, following widespread disruption due to operational challenges and cyclone damages.
As a result of reduced output of iron ore, end users are looking to secure seaborne cargos with lower alumina due to robust demand and attractive steel margins.
S&P Global Platts also observed a rise in alumina levels and penalties, where alumina penalties have tripled and reached a 2019-high on May 16.
Additionally, bids and offers were also observed for other lower-alumina mid-grade alternatives as well as lower-grade, lower-alumina options.
These factors are expected to affect the iron ore market. according to senior commodity analyst at S&P Global Market Intelligence Maximilian Court.
“Seaborne iron ore deficit is expected to widen to approximately 40 million tonnes this year due to disruptions at key global mines,” he said.
“We believe prices for iron ore are likely to remain elevated, due to a number of factors including lower levels of stocks, greater disruption and a change to penalties for alumina.”