IRON ORE DAILY: Vale Dam Incident In Brazil Pushes Up Prices

- Feb 06, 2019-

MB 62% Fe Iron Ore Index: $78.18 per tonne cfr Qingdao, up $3.49 per tonne. 
MB 62% Fe Pilbara Blend Fines Index:$79.02 per tonne cfr Qingdao, up $3.49 per tonne. 
MB 62% Fe Iron Ore Index-Low Alumina: $79.81 per tonne cfr Qingdao, up $3.59 per tonne. 
MB 58% Fe Premium Index: $70.83 per tonne cfr Qingdao, up $4.47 per tonne. 
MB 65% Fe Iron Ore Index: $91.60 per tonne cfr Qingdao, up $2.50 per tonne. 
MB 62% Fe China Port Price Index: 585 yuan per wet metric tonne (implied 62% Fe China Port Price $77.04 per dry tonne), up 18 yuan per wet metric tonne.

Key drivers
Last Friday's tailings dam failure at Vale's Córrego do Feijão mine near Brumadinho city in Minas Gerais state in south-east Brazil, has so far led to 58 deaths with 300 people still missing, as well as damaging facilities and loading terminals, according to reports.

The Feijão mine is part of the Paraopebas complex in Vale’s Southern System. The mine produced 8.5 million tonnes of iron ore in 2018, out of a total output of 27.3 million tonnes from Paraopebas.

Vale is yet to make an official statement about the impact on production or the iron ore products involved.

Market participants expect potential disruptions to supply of the miner’s fines products including Standard Sinter Feed Guaiba/Tubarao (SSFG/SSFT) and Sinter Feed High-Silica Guaiba/Tubarao (SFHG/SFHT).

If the only affected materials are standard SSFG/SSFT, there will be little impact on Vale’s flagship product in the 62% Fe segment, Brazilian Blend fines, sources said.

“But if supplies of [high-silica] SFHG/SFHT are affected, then we may see reduced availability [of Brazilian Blend fines, leading to] higher premiums for the brand,” an end-user source said.

Brazilian Blend fines are produced by blending higher-Fe and lower-silica fines from Carajas in northern Brazil with lower-Fe and higher-silica fines from Vale’s Southern and Southeastern Systems. 

A trader said that the worst-case scenario would be if high-silica supplies were severely affected, while another said that a possible replacement for end users could be supplies from rival Brazilian miner CSN. 

There have been jitters among market participants over the weekend that mining inspections and restrictions could intensify in Brazil as a result of the dam failure, and could even spread to other origins such as China, leading to tighter iron ore supplies in the coming months.

In the short term, there should be no lack of Brazilian materials in the spot market given the high stock levels at Chinese ports and cargoes on the long sea voyage, but if shipment reductions from Brazil coincide with weather disruptions in Australia, market supply and demand will be rebalanced, sources said.

China’s iron ore futures and swaps on the Singapore Exchange all soared early in the day, although there was a correction in later trading.

Spot iron ore transaction prices also jumped at Chinese ports, with trades focused on Pilbara Blend fines.

Seaborne trading was muted on the day, however, with buyers and sellers both waiting for a clearer picture of the accident’s impact. 

Premiums were heard offered $1-2 per tonne higher for index-linked shipments of Brazilian cargoes.

The MB 62% Fe Iron Ore Index, published daily by Fastmarkets MB, rose $3.49 per tonne on Monday, while the daily MB 65% Fe Iron Ore Index increased $2.50 per tonne. The price movements were based on the visible market activity detailed below, which was included in the index calculation according to the published methodology. 

For the calculation of the indices, judgment was applied to carry over data in today’s indices due to low liquidity in the 24-hour pricing window, corresponding with published fall-back measures. 

No data was discarded in the calculation of these indices. Any data received under Data Submitter Agreements or subject to a confidentiality request will not be published. 

Quote of the day
“There is a high chance Chinese mills will switch to lower-Fe ores, but with low alumina content as well such as Yandi fines, if the prices of other iron ore products surge too high, all in an effort to keep an already thin profit margin,” a China-based mill source told Fastmarkets.

Trades/offers heard in the market
Global Ore, 170,000 tonnes of 62% Fe Pilbara Blend fines, offered at the March average of a 62% Fe index at a premium of $2.30 per tonne, March arrival.

Port prices 
Pilbara Blend fines traded at 578-585 yuan per wmt in Tangshan and in Shandong province during the day, compared with 560-565 yuan per wmt last Friday, sources told Fastmarkets. 

The latest price range was equivalent to $75.90-76.90 per tonne cfr China. 

Dalian Commodity Exchange afternoon close

The most-traded May iron-ore futures contract closed at 550.50 yuan per tonne on Monday, up by 16.50 yuan per tonne from Friday’s closing price.

Deepali Sharma in Singapore contributed to this report.

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