SYDNEY – Iron ore prices soared to a record as a landslide at a Brazilian iron ore mine raised concerns about supply and demand in China getting hotter.
Iron ore prices jumped 7.8% to $ 176.90 a metric ton on Monday, the highest since September 2011 and nearly doubled its value at the start of the year, according to data from S&P Global Platts.
Iron ore, the main ingredient of steel, is one of the most traded commodities in the world among the best performing assets of 2020. It is currently less than 10% of the record price of $ 193 per tonne reached in February 2011.
Landslide last week at
The Córrego do Feijão mine, which killed a worker, has raised renewed concerns about supplies from Brazil. Shipments from the country – the second largest iron ore exporter, after Australia – have not fully recovered from a previous waste dam collapse and pandemic-related disruption to port and rail facilities.
The city of Brumadinho, in Brazil’s Minas Gerais state, where the Córrego do Feijão mine is located, has suspended Vale’s operating license for seven days, Vale said. It is the same part of Brazil where the dam exploded in 2019, killing 270 people.
“Being close to where the original dam failure occurred, the market is becoming increasingly concerned that Vale will struggle to reach new, lower targets for production,” said Daniel Hynes, senior commodity strategist at
Australian and New Zealand Banking Group Ltd.
The market was caught up this month when Vale said it would fail to meet its previous production target for 2020 and set its 2021 goal well below analyst expectations, Hynes said. Vale produces about 20% of the world’s iron ore which is traded by sea.
There are also concerns about supplies from Australia as the country enters its annual cyclone season, while China – the biggest iron ore buyer globally –has targeted commodities ranging from coal to wine with tariffs and other import restrictions as part of a broader diplomatic dispute.
“It’s no wonder the market places a supply risk premium on current prices,” said Hynes.
The stimulus in China and relatively low prices for metallurgical coal, also used to make steel, have given mills the flexibility to pay more for iron ore, the Australian government said in a report Monday.
China produces more than half of the world’s steel, and has recently produced it at near record rates. Its crude steel production totaled 92.2 million tonnes in October, up 13% on the same month a year earlier, according to the World Steel Association. November data will be published later Tuesday.
Several analysts raised their iron ore forecasts in recent weeks as prices rose.
raised its 2021 price forecast by 20% to $ 126 per tonne, citing strong Chinese steel production and a softer-than-expected production forecast from Vale.
“China’s data continues to improve,” JP Morgan analyst Lyndon Fagan wrote in a Dec. 14 note. Gauges of Chinese manufacturing and non-manufacturing activity recently posted their highest levels in three and eight years, respectively recoveries that expand in the second largest economy in the world.
Speculators have also sparked a rally, analysts said.
Jefferies Financial Group Inc.
on December 10 forecast iron ore prices will peak between $ 180 and $ 200 per tonne in the first quarter of 2021.
However, commodity steelmaking prices will retreat in the next year as Chinese demand cools and supply recovers, said Capital Economics analyst Samuel Burman. He estimates the price will return to $ 100 per tonne by the end of next year.
has the same forecast for end-of-2021 prices, although the bank expects iron ore to remain above that figure over the next few months due to a shortage of supply. “The expected surplus after 2022 will put prices on a downward trend from cyclical highs,” Citi said in a note.
Write to Rhiannon Hoyle at [email protected]
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