Iron prices have been surging for the past couple of months. In contrast with other industrial and precious metals which have been falling in value, global supply for iron has been in a pinch as some of the world’s largest facilities in Brazil have been shut down due to safety concerns.
Prices for the metal finally broke the $100 per tonne mark on Friday, breaking a record not seen in over five years as commodity investors cheered.
Most of this increase in price can be attributed to Vale (NYSE: VALE) and the various issues the company has had with its Brazilian operations. Besides the January collapse which killed hundreds of people and kick started the entire affair, the company warned the public last week that another major dam of theirs was at risk for rupturing as soon as this week.
While the company had already evacuated over 500 people at risk, the facility holds a large quantity of waste that, should a rupture occur, could cause significant environmental damage.
The Minas Gerais dam in question holds 6 million cubic meters of mining waste, roughly half of what January’s dam rupture released. Coupled with the fact that the facility is only 40 kilometers away from the previous rupture, there’s a big risk that the environmental spillage could re-damage the previously affected area.
This announcement was the catalyst for Friday’s price jump as global markets became increasingly worried that even more potential disasters could be coming soon. The benchmark Platts IODEX, specifically the spot price of 62% Fe content ore reached $100.40 per tonne on Friday, reaching a level not seen since 2014.
June futures contracts, in comparison, stayed just below that figure at $98.19, up 3.1 percent. According to MarketWatch, prices for the most-active iron contracts have increased by 40 percent to data.
“Iron-ore prices have hit new highs this week as steel production in China is growing fast this year, against earlier expectations of lower output,” said Hector Forster, senior pricing editor of raw materials and steel at S&P Global Platts. “Industry analysts have revised up expectations for steel output and seaborne iron ore demand, citing their expectations China cannot easily bring more iron ore back into the market, which may support iron ore prices longer into the second half.”
Other analysts have gone on to say the same thing while also emphasizing that while there isn’t much risk to human life, the potential for environmental damage remains huge, alongside the potential fines that Vale will likely receive in the process from the Brazilian government.
As the largest producer of iron ore in the world, Vale’s reduced output from Brazil has affected the market significantly. April shipments from the country were down 60 percent below normal levels for the month. At the same time, a cyclone hit the Pilbara region, further delaying shipments from not just Vale but Rio Tinto, BHP, and Fortescue in another top iron producing region, Western Australia.
When combined with the record-breaking steel output from China, the global demand for iron is expected to remain strong as prices continue to surge upwards.