Iron ore futures in China are getting hosed

Rodrigo Arangua / AFP / Getty Images
  • Chinese iron ore futures have slumped on Wednesday, falling over 4%.
  • News that a major iron ore mine operated by Brazil’s Vale will be allowed to resume production appears to be the catalyst.
  • The facility had been shut since early February following a deadly mining accident at a separate iron ore mine in late January.

Iron ore futures in China are getting hosed, slumping 4% on Wednesday on news that Brazilian supply disruptions may not be as severe as previously thought.

The May 2019 iron ore contract in Dalian is currently trading at 610 yuan, having hit a low of 601 yuan earlier in the session. It’s currently down 4% from Tuesday’s day session close, and well below the 635 yuan level it finished on Tuesday evening.

Thomson ReutersDalian May 2019 Iron Ore Contract

The abrupt decline, seen in the chart above from Thomson Reuters, coincides with news that a Brazilian court has approved the resumption of operations at Vale’s Brucutu mine, its largest iron ore facility in the state of Minas Gerais.

Operations at Brucutu had been suspended since early February following a deadly mining accident at a separate facility operated by Vale.

According to website Mining.com, a separate court ruling on Monday will also allow Vale to resume iron ore loading at its Ilha GuaĆ­ba export terminal in Mangaratiba, from where it ships some 40 million tonnes of iron ore per year.

Combined, the news appears to be the catalyst behind the plunge in iron ore futures on Wednesday.

Iron ore spot prices have soared since late last year, helped by less onerous environmental curbs governing Chinese industrial output over winter and concerns over supply disruptions in Brazil.

On Tuesday, the price for 58% fines jumped to the highest level in nearly five years. Prices for mid and higher-grade iron ore fines also remain just below multi-year highs struck in February.

While there’s still plenty of uncertainty over the outlook for Brazilian supply given temporary closures at other iron ore facilities within the country, the movement in Chinese futures suggests prices in physical markets may also fall abruptly on Wednesday.

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