Iron Ore Blasts Past $100 After Pandemic Forces Brazil Mine Halt

(Bloomberg) -- Iron ore futures surged above $100 a ton after Brazil’s Vale SA was ordered to suspend operations that account for about a 10th of its output after workers contracted Covid-19, boosting concerns surging cases will disrupt other mines in the top shipper after Australia.

The ruction is the latest supply shock to hit the global market over the past 18 months, following a dam burst at a Vale mine in 2019 that roiled prices as well as weather-related disruptions this year. Iron ore could hold above $100 for the next two months, Morgan Stanley said, although it cautioned that a surplus and lower prices were still expected in the final quarter. Higher prices will benefit Australian majors BHP Group, Rio Tinto Group and Fortescue Metals Group Ltd.

“This is the birth of yet another supply issue in Brazil” and prices will remain elevated in the short term, according to CITIC Futures Co. analyst Zeng Ning. At the same time, demand in China is strong, with good steel-mill profitability, rising utilization rates and low port stockpiles, he said.

Vale’s shutdown comes as Covid-19 explodes in Latin America, with the region’s highly urbanized population of 600 million becoming the new global center in a continent that’s a major shipper of copper and agricultural products, as well as iron. Brazil’s case count is now second only to the U.S.

A Brazilian labor court issued an order to halt mining at the Itabira complex after 188 workers tested positive, restoring a ban sought by prosecutors that Vale fended off last month. The halt is in place until a final ruling or until Vale satisfies inspectors on control measures. Vale said there’s no need for now for cutting export guidance after making a reduction in April.

Futures surged as much as 6.2% to $103.53 a ton, and traded at $102.49 at 2:57 p.m. in Singapore, set for the highest close since August. Spot prices topped the $100-a-ton level in late May and have largely held above that since then.

Before the Itabira order, the global market had been expected to shift to a surplus in the second half, echoing last year’s pattern that saw prices surge in the first half on a supply crunch before dropping as output picked up. Morgan Stanley said there’ll still be a glut at the end of this year.

While the outlook in Brazil is uncertain, Australian shipments are booming. Exports from Port Hedland -- the country’s main iron ore port -- swelled to a record for the month of May and were the second-highest ever, according to data Monday.

In April, Vale cut annual guidance to between 310 million tons and 330 million tons, with that revised projection considering as much as 15 million tons of losses from eventual Covid-19 impacts. Considering the expected monthly production of 2.7 million tons from Itabira, “there is no need, at this moment, to revise the guidance,” it said.

The company said the Itabira shutdowns may cause shortages of pellets for blast furnaces used in the domestic market given the mines supply the Tubarao pelletizing complex.

©2020 Bloomberg L.P.