Investors Whipsawed as Iron Ore’s Dramatic Year Continues

(Bloomberg) -- Iron ore’s dramatic year continued Wednesday as investors were whipsawed by two big pieces of news with conflicting implications.

First, Brazil’s Vale SA said it won court approval to revive operations at one of its biggest projects, a development that’s likely to help ease global supply concerns that had sent prices to a five-year high. But just a few minutes later, No. 2 miner Rio Tinto Group said it’s not going to be able to hit an already lowered output target this year after problems at its sprawling operations in Western Australia.

The iron ore market has been on a roar since January after the fatal collapse of a dam in Brazil resulted in steep reductions in supply from Vale, the biggest shipper. Those supply concerns have been compounded by operational problems in Western Australia, where Rio and BHP Group mine.

Today’s announcements come after iron ore prices renewed a surge in recent days, hitting the highest levels in five years. Prices have been driven higher as the effects of supply disruptions in Brazil ripple through to China, where port inventories have tumbled and steel mills are churning out record volumes.

London-based Rio now expects to produce 320 million to 330 million tons this year. That’s less than an earlier goal of 333 million to 343 million tons. Vale’s restart could bring on an additional 5.4 million tons this year, according to BMO Capital Markets.

Vale said today that Brazil’s Superior Court of Justice revoked the injunction stopping the iron ore miner from using its dam in Brucutu, clearing the way for the company to reopen the mine within 72 hours.

That’s the third time the Rio de Janeiro-based miner signaled the return to normal operations at facilities that accounted for almost a third of the capacity that’s been shuttered since the fatal tailings dam disaster in January.

“The net impact of Rio Tinto and Vale’s announcements is a further reduction in iron ore supply in an already tight market,” BMO analyst Edward Sterck said. “Price spikes in iron ore probably cannot be ruled out, but we still think that pricing is sufficient to stimulate swing supply.”

Rio cut its guidance in April after a cyclone hit its operations in Australia, lowering an original target of 338 to 350 million tons. BHP Group, the No. 3 producer, also cut its target, adding to supply concerns.

Rio shares fell as much as 5.4% in London trading. The stock is still near the highest level in more than a decade because of the rally in iron ore, the most important commodity for the company.

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Liezel Hill, Dylan Griffiths

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