Brazil’s dam disaster alters iron ore market dynamics

Subject

Iron ore market.

Significance

China, which represents 70% of seaborne iron ore demand, has seen its port inventories fall after the tailings dam burst at Vale’s Brumadinho mine in Brazil’s Minas Gerais state in January. The 1.5-billion-tonne market is tightening as the particularly heavy cyclone season has also idled infrastructure in northern Australia. Steel mills are responding by restocking and prices are rallying above 100 dollars per tonne, up more than 50% year-on-year.

Impacts

• China’s Chinalco leaving talks to buy Rio Tinto’s stake in Guinea's Simandou project clouds the future of West Africa’s largest deposit.
• Singapore Exchange's launch of a high-grade 65% iron ore derivative contract is a new step to financialise this market; more will come.
• The penalties imposed on alumina impurities in iron ore will increase if prices of metallurgical coal remain strong.
• If the United States decides to expand its tariffs on steel imports, iron ore would be one of the casualties.
• After seven years’ absence, magnetite is in demand to fill a gap in iron ore quality, with China already buying 4 million tonnes.