The worsening Covid-19 crisis in Brazil is making waves in the world of commodities with reduced shipments of iron ore from the South American country lifting the price of steelmaking materials by 30% to nearly $ 100 per ton.
There may be more to come with some analysts who are expecting a return to last year’s peak price of $ 125 / t, an unexpected increase also caused by events in Brazil.
Other iron ore exporters, especially Australia, were winners of Brazil’s latest setback while China bore the brunt of the increase.
Last year’s price mover event in Brazil was the death of 270 people after a dam designed to contain mine waste collapsed, forcing the closure of several mines and a sharp decline in exports.
Covid-19 hits Brazilian mineral exports
This year’s setback is Covid-19 and its potential to cripple Brazilian mines and port operations.
Adding to market pressure, which has seen a rise in benchmark ore prices from around $ 75 / t to the latest trade at $ 98 / t, is strong demand for steel in China as it stimulates economic growth after the Covid-19 lockdown.
Brazil, unlike many other countries, has not uniformly enforced lockdowns with the result of a rapid and widespread increase in Covid-19 infection rates which earlier this week saw a U.S. flight ban from Brazil.
The political impact of what is happening in Brazil is also spreading beyond the country’s borders and may be a factor in China choosing not to escalate disputes with Australia which has seen sanctions against Australian beef and barley imports.
Australian miners are concerned that they will be the next target in the Chinese campaign mounted in retaliation for Australia’s main role in calling for an international investigation into the source of the deadly virus.
The Brazilian problem seems to have prevented the worsening of trade disputes because of the importance of Australia as a supplier of iron ore to Chinese steel mills which have returned to full production.
Falling Port Stock Is a Sign of Market Tightness
Iron ore stocks in Chinese ports have fallen along with steel inventories at steel mills in a multiplied example of price tightness which is driving prices in the iron ore market.
Despite their differences over the geographic investigation Covid-19 has made China and Australia’s natural trading partner.
The Australian port is only 12 days sailing from China while the sailing time for large ore carriers from Brazil is 45 days.
The latest mining production data from Brazil shows a 12% decline in iron ore shipments compared to last year while the two main Australian producers have increased production, Rio Tinto by 7% and Fortescue Metals by 24%.
McKinsey & Co., a management consultant, estimates that production disruptions in countries such as Brazil and South Africa could see a 5% reduction in global iron ore production which creates an almost perfect storm for Australian miners.
Macquarie Bank said in its latest iron ore research note that it expects “a material increase in income for Australian iron ore miners from next year onwards”.
Credit Suisse estimates the price of iron ore rises above $ 100 / t but it may not be long if Brazil can recover exports.
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