Iron ore prices soar as Vale shuts mines down

Queensland Coal comprises the BHP Mitsubishi Alliance (BMA) and BHP Mitsui Coal (BMC) assets in the Bowen Basin in Central Queensland, Australia. Source: BHP

Australia’s big iron ore miners are set to cash in on surging iron ore prices as Brazil’s Vale has been hit with coronavirus-related troubles.

The Brazilian court ordered Vale to shut down the Conceição, Cauê and Periquito mines at the Itabira complex south-east of the country after 188 workers had tested positive for COVID-19.

The ruling will remain in effect until control measures have been implemented to protect workers from COVID-19.

The mines shutdown will take about 10 per cent of Vale’s iron ore output offline, or about 2.7 million tonnes per month, which equates to about 2 per cent of the global market.

The fear of shrinking supply led to a jump in Chinese iron ore futures on Monday, which according to Nasdaq, was the biggest intraday percentage gain since July last year.

The most-traded September contract of iron ore futures on the Dalian Commodity Exchange soared as much as 7.6 per cent to 798 yuan ($160.65) per tonne, the biggest percentage change since July  2019. It closed up 5.5 per cent at 783 yuan a tonne on the previous day.

Vale has left its 2020 production outlook unchanged at 310–330 million tonnes of iron ore, stating it had already factored in coronavirus-related shutdowns.

Since the start of May, iron ore prices have jumped from about $US80 ($113) per tonne to $US102.43 at the end of last week.

This was partly due to the potential impact of COVID-19 on Brazilian iron ore production, which accounts for about 23 per cent of iron ore supplied to the seaborne market.

Australia’s iron ore exports for the 2019-20 financial year are expected to be worth $81.5 billion, according to government forecasts.

Vale’s Australian rivals – Rio Tinto, BHP and Fortescue Metals Group – are all primed to further benefit from the news as fears of a supply crunch push up the price of the vital steelmaking ingredient.

Fortescue achieved a record iron ore shipment to China during the March quarter, shipping 42.3 million tonnes – a 10 per cent increase on the 38.3 million tonnes shipped in the prior corresponding period.

BHP also indicated plans to grow its iron ore export capacity in Port Hedland in Western Australia by 14 per cent — from 290 million tonnes per year to potentially 330 million tonnes per year.

Iron ore was a major driver of Australia’s exports in March, experiencing a 36 per cent monthly increase and a 47 per cent increase on last year.

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