Vale was ordered to suspend its iron ore operations in Brazil after a number of workers contracted COVID-19. Vale’s operations in Brazil account for about a 10th of its overall out and the news of the suspension sent iron ore futures surging past $100/t with concerns that more cases of COVID-19 would disrupt other mines in the top iron ore shipper after Australia.

It is the latest supply shock to iron ore in the past 18 months, following a dam burst at a Vale mine in 2019 that roiled prices as well as weather-related disruptions this year. Iron ore could hold above $100 for the next two months, Morgan Stanley said, although it cautioned that a surplus and lower prices were still expected in the final quarter. Higher prices will benefit Australian majors BHP Group, Rio Tinto Group and Fortescue Metals Group Ltd.

“This is the birth of yet another supply issue in Brazil” and prices will remain elevated in the short term, according to CITIC Futures Co. analyst Zeng Ning. At the same time, demand in China is strong, with good steel-mill profitability, rising utilization rates and low port stockpiles, he said.
Brazil has become a hot sport for COVID-19 as the country is also becoming the new global center in a continent that’s a major shipper of copper and agricultural products, as well as iron. Brazil’s case count of COVID-19 is now second only to the U.S.

Bloomberg reported that a Brazilian labor court issued an order to halt mining at the Itabira complex after 188 workers tested positive, restoring a ban sought by prosecutors that Vale fended off last month. The halt is in place until a final ruling or until Vale satisfies inspectors on control measures. Vale said there’s no need for now for cutting export guidance after making a reduction in April.

Before the Itabira order, the global market had been expected to shift to a surplus in the second half, echoing last year’s pattern that saw prices surge in the first half on a supply crunch before dropping as output picked up. Morgan Stanley said there’ll still be a glut at the end of this year.
While the outlook in Brazil is uncertain, Australian shipments are booming. Exports from Port Hedland - the country’s main iron ore port - swelled to a record for the month of May and were the second-highest ever, according to data.

In April, Vale cut annual guidance to between 272 Mt and 300 Mt (310 million st and 330 million st), with that revised projection considering as much as 13.5 Mt (15 million st) of losses from eventual COVID-19 impacts. Considering the expected monthly production of 2.5 Mt (2.7 million st) from Itabira, “there is no need, at this moment, to revise the guidance,” it said.

The company said the Itabira shutdowns may cause shortages of pellets for blast furnaces used in the domestic market given the mines supply the Tubarao pelletizing complex.

Photo: Haul trucks loading in a Vale mine in Itabira, Brazil/ Credits: Janaina Duarte