Iron ore tumbles as supply concerns ease, but it may not remain that way for long

Bureau of MeteorologyBureau of Meteorology
  • Iron ore spot and futures markets were hosed on Wednesday, logging the largest decline in months.
  • Reduced concerns over supply disruptions in Brazil was cited as the reason behind the steel falls.
  • Just as concerns about Brazilian supply are diminishing, they might be about to escalate in Australia with a strong cyclone set to hit the Pilbara coastline this weekend, according to forecast modeling.

Iron ore spot markets tumbled on Wednesday, logging the largest price decline in months.

According to Metal Bulletin, the price for benchmark 62% fines skidded 3.4% to $84.30 a tonne, completely reversing gains seen over the past week.

It was the largest percentage decline since November 26 last year.

After rallying for six consecutive sessions and lifting to a near five-year high on Tuesday, the price for 58 fines fell heavily, slumping 4.9% to $69.50 a tonne. That too was the largest decline since late November last year.

Higher grade ore was the relative standout performer for the session, dropping only 2.3% to $95.60 a tonne.

The steep falls followed 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.

“Vale still requires approval from SEMAD (local government environmental regulator) to restart operations,” said researchers at Citibank.

“This is a positive indicator that Brucutu could be restarted ahead of expectations. Vale currently has 83 million tonne of iron ore capacity closed, including 30 million tonnes from Brucutu.

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

The news saw Chinese iron ore futures, like spot prices, plunge on Wednesday, reflecting the view that supply disruptions in Brazil may now be less severe than first feared.

The May 2019 iron ore contract slumped to as low as 601 yuan during the session before recovering to close at 613.5 yuan. Still, that was still a sizable fall from the 635 yuan level it finished on Tuesday evening.

Weakness in Chinese steel futures may have also contributed to the selling pressure with the most actively traded rebar and and hot-rolled coil contracts sliding to 3,777 and 3,688 yuan respectively, down from 3,797 and 3,723 yuan on Tuesday evening.

Coke and coking coal contracts also finished flat to lower, ending trade at 1,968 and 1,225 yuan respectively.

Despite modest buying in Chinese steel contracts, Dalian iron ore futures failed to lift in overnight trade on Wednesday.

SHFE Hot Rolled Coil ¥3,719 , 0.40%
SHFE Rebar ¥3,805 , 0.61%
DCE Iron Ore ¥613.00 , -0.08%
DCE Coking Coal ¥1,230.00 , 0.00%
DCE Coke ¥1,974.50 , 0.41%

The mixed price performance offers few clues as to whether the selling pressure in iron ore spot markets will continue today. Trade in Chinese futures will resume at midday AEDT.

While all interest has been on Brazilian iron ore supply recently, attention is likely to switch to Australian supply in the coming days with Tropical Cyclone Veronica set to move towards iron ore assets in Western Australia’s Pilbara region.

Veronica is already a category 4 storm and is expected to strengthen to a category 5 system on Friday. The latter is the highest category of cyclone, indicating it’s a very dangerous system.

Australia’s Bureau of Meteorology has Veronica’s forecast track hooking towards the Pilbara coastline in the days ahead.

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