The first month of 2019 has been quite positive for many markets, with commodities in particular seeing strong growth signs throughout most precious metals. While Palladium, Nickel, and Zinc led the way in January, Iron ore is joining the trio in making impressive gains as the metal breaks a 5-year high not seen since 2014.
Iron ore futures jumped to their highest level in over five years by the end of the week, mainly pushed by news of top ore producer Vale SA (NYSE: VALE) suspending work at its Brazilian Brucutu mine following the disaster which saw dozens killed and hundreds misplaced.
“In the near term, the significant disruption to Brazilian supply and the uncertainties associated with it will likely keep iron ore prices elevated and volatile as supply elsewhere cannot adjust quickly enough to offset the shortages,” Goldman analysts noted last week.
At the same time, most commodities analysts are interested in seeing how Chinese traders would react on Monday as they return from lunar new year festivities for the first time since the company’s production problems surfaced. Currently, Vale is facing an annual production loss of 30 million tonnes in addition to an earlier 40 million tonne disruption it faced.
“We have been concerned about the lack of rebuild of port stocks in China,” said Matthew Hope, analyst at Credit Suisse according to Business Insider.“Next week, iron ore restocking ahead of the Spring construction season should begin. With port stocks remaining depleted, bidding for spot cargoes by port traders may be strong to replenish depleted trading stocks. On top of this, the market now has a force majeure declaration from Vale for the 30-35 million tonnes per annum of Brucutu ore that was stopped by a court order. The buyers affected may well have to turn to spot cargoes also, so bidding could become highly competitive and see the prices run higher.”
Many other Wall Street analysts predict that, should the Chinese markets react worryingly to the supply issues of Vale, prices for iron ore could hit the triple-digit levels. Another major financial institution, The Common Wealth Bank, echoed similar sentiments as they expect iron ore to surge in price. The only thing in question is how long such a price increase last for.
Vale SA Company Profile
Vale S.A., together with its subsidiaries, produces and sells iron ore and iron ore pallets for use as raw materials in steelmaking in Brazil and internationally. It operates through Ferrous Minerals, Coal, and Base Metals segments.
The Ferrous Minerals segment produces and extracts iron ore and pellets, manganese, ferroalloys, and others ferrous products and services, as well as engages in the provision of related railroad, port, and terminal logistics services. The Coal segment is involved in the extraction of metallurgical and thermal coal; and provision of related logistic services.
The Base Metals segment produces and extracts non-ferrous minerals, including nickel, as well as its by-products, such as ferro-nickel, cobalt, gold, silver, copper, precious metals, and others. The company was formerly known as Companhia Vale do Rio Doce and changed its name to Vale S.A. in May 2009. Vale S.A. was founded in 1942 and is headquartered in Rio de Janeiro, Brazil – Bloomberg