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Iron ore supply shock builds as vessel data reveal collapse

13 Απριλίου 2019.

ironore8The global iron ore market is getting squeezed as shipments from Brazil dwindle following Vale SA’s dam disaster and mine curtailments, with vessel-tracking data highlighting a steep decline in cargoes being loaded.

Exports from the top shipper after Australia fell to 3.4mn tonnes in the week to April 5, according to GlobalPorts data compiled by Bloomberg. That’s down from 3.9mn in the previous period, and far below the weekly totals of between 5mn and 8mn seen in the initial months of this year.

“We expect another leg up in pricing,” said Jeremy Sussman, managing director of metals and mining at Clarksons Platou Securities Inc, reaffirming a prediction that Vale’s dam burst will help prices to hit $100 a ton. That call was made as early as February in the immediate aftermath of the spill.

The seaborne market has been rocked by hits to supplies in 2019, spurring a rally in prices to multiyear highs as benchmark ore soared into the $90s.

First, Vale suffered from a dam breach in January that forced the company to scale back output and declare force majeure, then in March a cyclone in Australia disrupted production from Rio Tinto Group and BHP Group. Citigroup Inc has said prices will hit $100 a tonne, predicting that there’ll be a supply crunch.

“We don’t believe the impact from the Brazilian tragedy has truly been felt yet, at least to the fullest extent, in the Chinese market from a physical standpoint,” Sussman said. “Our tracking of shipments suggests Vale was shipping from inventory until roughly mid-March,” he wrote in an e-mail received overnight.

The GlobalPorts data add to evidence of a slump in the pace of exports from Brazil and strengthen the picture that the impact of Vale’s crisis will take months to become fully apparent. Brazilian government figures show exports sank to 22.2mn tonnes in March, the lowest figure for that month since 2009.

Spot iron ore was at $93.45 a tonne on Tuesday after hitting $94.90 the day before, the highest since 2017, according to Mysteel. In the first quarter, the benchmark surged 20% as investors began to price in the disruption, aiding rival miners Rio, BHP and Fortescue Metals Group.

Yesterday, futures erased an early loss to trade 0.5% higher at $91.80.

Vale chief financial officer Luciano Siani Pires warned late last month that while the earlier price gains had been driven by expectations, “now the physical consequences will start to reach the market.”

A voyage from Brazil’s Tubarao to Qingdao spans about 11,000 nautical miles (20,000 kilometres), and a Capesize vessel traversing the route via the Cape of Good Hope and then returning to Brazil takes 85 to 90 days, according to Bloomberg Intelligence. That means the consequences of lower loadings in Brazil in March and this month will show up in China from late April onward.

Still, port holdings of ore in China, the world’s largest importer of the steelmaking ingredient, have actually expanded since the Vale disaster. The stockpiles stood at 148.9mn tons last week, the highest since September, according to Shanghai Steelhome E-Commerce Co.

“We expect iron ore prices to remain above $90 a ton in the short term as physical markets tighten since the disruption to Vale’s iron ore exports is only now being felt by importers,” Commonwealth Bank of Australia said this week. Falling “port stockpiles will be the key signal for growing tightness,” it said.

National Australia Bank Ltd has raised its 2019 price forecast to $82 from $80, citing market tightness. “The tenuous market balance post the Brazilian mine closures in January – due to tailing dam safety concerns – has been further impacted by supply losses in Western Australia,” it said yesterday.

Source: Bloomberg

 

 

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