Australian miners gain on further Vale woes
Shares in ASX-listed producers have jumped once again on news of Vale’s on-again, off-again reopening of a major mine.
Brazil’s courts have delivered a fresh boost to Australian iron ore miners, with shares in ASX-listed producers jumping once again on news of Vale’s on-again, off-again reopening of a major mine.
Vale said yesterday an appeals court had put a stay on orders allowing a restart at its 30-million-tonne-a-year Brucutu mine, closed down following January’s tailings dam disaster.
But while the company did not change its annual output guidance of 307 million-332 million tonnes this year, it now says it expects shipments are likely to come in between the “bottom and the middle of the range”.
The iron ore major delivers its March quarter production report overnight on Friday, and is expected to update its guidance and outlook for its legal battles in Brazil when it does.
Earlier disasters had already led to expectations the iron ore market could be in deficit this year, with JP Morgan analysts last week flagging a 46 million tonne deficit in supplies because of Vale’s tailings dam issues and successive guidance cuts from Rio Tinto and BHP Billiton due to the impact of cyclones in the Pilbara, totalling as much as 28 million tonnes for the year.
News of Vale’s latest setback sent futures contracts on the Dalian exchange yesterday up by 4 per cent, and led to strong gains in Australian miners.
Fortescue Metals Group shot up 45c, or 6.3 per cent, to $7.60, with Mineral Resources up 37c to $15.38, Rio Tinto up $2.10 to $96.05, BHP Group up 50c to $37.30 and Mount Gibson Iron — which has just resumed shipments from its high-grade Koolan Island operation — up 2c to $1.155.
Fortescue and MinRes were also boosted by signs that discounts for lower grade products, which still dominate their export volumes, had narrowed markedly in recent weeks to the lowest levels in more than three years.
Yesterday’s sudden surge mirrors the sharp dip in ore stocks three weeks ago, when Vale announced a lower court had ticked off on the reopening of Brucutu and shipments were expected to begin within 72 hours, but it did not upgrade its output guidance, underlining the volatility and uncertainty in iron ore markets.
JPMorgan analyst Lyndon Fagan noted last week that stockpiles in Chinese ports fell 13 million tonnes last month to about 135 million tonnes, as steelmakers drew down on stocks to replace ore on vessels that failed to arrive.
Mr Fagan noted inventory levels were still at above average levels, but said further falls would help underpin further rises in spot iron ore prices.
The benchmark iron ore price for 62 per cent ore had surged from about $US72.50 a tonne at the start of the year to more than $US95/tonne mid-last month.
Vale’s initial announcement that it had been given permission to reopen Brucutu hit the value of Australian miners — Fortescue Metals shares fell 67c, or 8.3 per cent, to a $7.43 close. Rio Tinto fell $4.80, or 4.7 per cent, to $96.40 and BHP dropped $1.07 to $38.30 on the day of the announcement — and none have since approached their earlier highs.
But while the iron ore price softened briefly following Vale’s news, to about $US92/t, it has remained steady and is hovering only just below the $US95/t mark.