Iron Market Supply Crunch Grows as 10 Million Tonnes Removed from Vale’s Output

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The mining sector has seen a number of key commodities price’s has continued to rise over the past couple of months. Iron is one of those that has been going up in price, with most of this being due to decreased supplies as the world’s top iron ore producer, Vale SA (NYSE: VALE), saw it’s output drastically decline over the weeks following a dam that burst in Brazil, killing around 300 people.

With regulators closing in on the company, it turns out that the iron giant will need to shut down another major mine in Brazil for safety issues, further impacting the global iron markets.

Today Vale had stopped operations at their Alegria iron mine in the Minas Gerais state of Brazil, a move that will remove around 10 million tonnes of iron ore from the market over the course of the year. The preventative decision was taken after a stress test failed to guarantee that the mine wouldn’t collapse and the company chose to stop production rather than risk another catastrophe.



“Vale S.A. informs that it has temporarily and on a preventive basis suspended the operation of the Alegria mine, in the Mariana complex, despite the stability of its structures. Under stress conditions, the results from preliminary analysis of its structures were inconclusive, not being possible to guarantee their stability under such conditions,” said Vale in a press release. “The studies will continue and, as soon as they are completed with assurance of stability under stress conditions, the operations will be resumed. Vale estimates a maximum potential impact on production of approximately 10 Mtpy.”

Last week, Vale was also forced to shut down its Timbopeba mine, cutting another 12.8 million tonnes of iron ore per year due to safety concerns. The company later received halt orders for two of their major dams alongside demands from prosecutors to pay around $13 billion in environmental damages done.

This announcement from Vale follows a report from Reuters which said that Brazilian authorities have evidence that executives at the company quashed efforts from national regulators to audit the dam that burst in January months prior to the catastrophe, suggesting that this could have been prevented. Prosecutor William Garcia would say that Vale’s auditing company, Tuv Sud, made it difficult for safety officials to inspect the dam as well as hiding “from public view the state of the dam, which was so critical that less than two months later it broke.”

Vale’s stock prices didn’t move too much in response to the news, dropping around two percent by noon before gaining half of that by the end of the day.

Vale SA Company Profile

Vale is the world’s largest iron ore miner and one of the largest diversified miners, along with BHP and Rio Tinto. Earnings are dominated by the bulk materials division, primarily iron ore and iron ore pellets, with minor contributions from iron ore proxies, including manganese and coal. The base metals division is much smaller, primarily consisting of nickel mines and smelters with a small contribution from copper. – Warrior Trading News

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