Brazil coronavirus crisis lifts iron ore prices
Brazil’s COVID-19 outbreak has disrupted global iron ore supplies just as China revs up, pushing prices to a 7-month high.
Brazil’s deadly coronavirus outbreak has disrupted global supplies of iron ore just as demand from China is revving up, pushing the price of the steel ingredient to a seven-month high.
Iron ore is one of the most heavily traded commodities and can influence the price of materials used in everything from buildings to cars.
Front-month futures for ore with 62 per cent iron content jumped 10 per cent to nearly Yen759 ($US107) a tonne on Wednesday on China’s Dalian Commodity Exchange. That is their highest closing price since October 2019.
Prices have risen 20 per cent since early April, driven by squeezed supplies from Brazil, which dominates the iron-ore mining industry along with Australia.
The rally is also an indication that China’s economy is gathering momentum, after a downturn at the start of the year when swathes of the country went into lockdown to stop the coronavirus spreading.
The iron ore market has been remarkably robust, said John Meyer, head of research at SP Angel, a brokerage for small mining companies in London. “The steel producers in China, they slowed things down during lockdown but have been pretty quick in getting back up to production.”
Higher iron ore prices will add to pressure on profits at steelmakers globally, but are a boon for miners including BHP Group and Rio Tinto. Rio Tinto, one of the world’s top exporters of the material, has previously said an extra $US10 per tonne of iron ore generates $US2 billion in free cash flow.
Iron ore shipments from Brazil have fallen by almost a quarter in May because of the country’s coronavirus crisis, which is one of the worst in the world, said Macquarie analyst Serafino Capoferri. Brazil exported 15.27 million tonnes of iron ore in the first three weeks of May, he said. That is down from 19.4 million tonnes in the comparable period of 2019, when exports were already lower than normal following the fatal dam collapse at Vale’s mine in Brumadinho.
“The situation in Brazil is pretty much out of control,” said Mr Capoferri. He said the pandemic had caused difficulties at the country’s mines, which are more labour-intensive and require people to work closer together than mines in Australia.
Vale has said the coronavirus will reduce the amount of iron it is able to produce this year. The company said in late April it will mine between 345 million and 370 million tonnes of iron ore powder and pellets in 2020, around 40 million tonnes less that it previously expected. Brazil as a whole mined 480 million tonnes of iron ore in 2019, according to the US Geological Survey, a fifth of global production and second only to Australia.
Brazil had 271,885 confirmed cases of coronavirus as of Wednesday, according to the Johns Hopkins University, the third-highest in the world. Nearly 18,000 people there were confirmed to have died of COVID-19, and the true number may be far higher because the country does less testing than the US and Europe.
The squeeze on supplies has struck at the same time as demand for the raw material from China’s steel sector is picking up. Steel mills there produced 85 million tonnes of crude steel in April, according to the National Bureau of Statistics, almost 8 per cent higher than the 79 million tonnes made in March.
That trend will continue if the government unveils measures to boost the economy at the annual legislative conclave starting Friday, analysts said. Other markets that are highly exposed to China’s commodity-intensive economy, including copper and crude oil, have risen in recent weeks.
Also boosting iron ore demand: a shortage of recycled steel stemming from disruptions in the scrap-metal industry, said Mr Capoferri. That has led to difficulties at electric-arc furnaces, which use less iron ore and more scrap steel than traditional steel blast furnaces.
Strong iron ore prices have rippled into the currency market, supporting the Australian dollar during a dispute with China over Australia’s push for an international investigation into the start of the coronavirus crisis.
The Australian dollar has risen 4.1 per cent against the US dollar over the past month, making it the second-best performer among developed-market currencies.
Wall Street Journal
