Iron Ore Prices Slip on Brazil’s Stabilization

Iron ore futures slipped on Tuesday (February 25) as the Dalian Commodity Exchange (DCE) reacted to news that Brazil has seen higher daily exports of the commodity this month compared to the same time last year.

According to foreign trade agency Secex, Brazil exported an average of 1.4 million tonnes of iron ore per business day for the month to February 22.

This outweighs February 2018’s numbers by 7.8 percent, states Reuters, despite last month’s Vale (NYSE:VALE) dam disaster in Brazil, which left investors wondering about iron ore supply.

Vale’s initial response was to halt several of its operations after the crisis, and it has since been estimated that the major miner will see a production drop of around 10 percent for this year.

Research and consultancy firm Wood Mackenzie released commentary stating that the company will produce 50 million tonnes (Mt) less than planned.

Additionally, Brazil’s National Mining Agency published a new regulation following the disaster that bans all dams built with the upstream method. According to Wood Mackenzie, the new regulation puts close to 8 Mt of seaborne supply at risk in 2019, excluding Vale’s supply.

The firm went on to suggest that the losses will indicate a price of US$85 per tonne, while the at-risk 8 Mt could push the cost even further to US$90 per tonne depending on outcome.

For the time being, iron ore futures on the DCE have simmered, with the most-traded iron ore contract for May delivery closing 3.2 percent lower at US$88.60 per tonne.

While supply scares still stand to strengthen prices, the most recent report from FocusEconomics predicts that iron ore prices will continue to calm over the course of the year before reaching a forecasted US$61 in 2019’s fourth quarter.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.