Iron ore miner Vale has been ordered by a Brazilian court to shut down one of its mining hubs to help address the spread of COVID-19, adding to a string of supply disruptions that have bolstered the commodity’s price.
Iron ore miner Vale has been ordered by a Brazilian court to shut down one of its mining hubs to help address the spread of COVID-19, adding to a string of supply disruptions that have bolstered the commodity’s price.
Prices surged 6 per cent to $103.35 a tonne in Singapore on Monday, the highest since August 2019, according to a Bloomberg report.
The Regional Labour Court ruled on Friday that Vale needed to suspend the activities of its Itabira mining complex, which comprises three mines and accounts for about 10 per cent of its output.
Despite the ruling, Vale has maintained its production guidance.
It has already factored in a negative production impact of 15 million tonnes from the fight against COVID-19, which has spread extensively through Brazil.
“Considering the expected monthly production of 2.7Mt from the Itabira complex for the coming months and the provisioning of up to 15Mt of losses associated with COVID-19 in 2020, there is no need, at this moment, to revise the guidance,” the company stated.
Vale is forecasting iron ore fines production of 310-330 Mt in 2020, more than BHP’s annual output from its Pilbara mines but less than Rio Tinto’s production.
Supply issues in Brazil, stemming from dam collapses last year, bad weather early this year and now COVID-19, have bolstered the iron ore price, which has traded around $US100 per tonne over the past week.
Supply disruptions in South Africa and other small suppliers such as India, Peru and Chile have also had an impact, according to investment bank UBS, while on the flipside, demand from China has remained buoyant.
In a research note last week, UBS said it expected the iron ore price to drift lower but noted a high degree of uncertainty.
“The iron ore price (62% CFR China) has averaged US$89/t year-to-date with spot at ~US$100/t and above our CY 20e forecast of US$86/t,” UBS said.
“However, we are comfortable with our forecast and expect only a modest surplus emerging in 2020e but this being contingent on Brazil's iron ore exports recovering into 2H 20.”
UBS acknowledged the big supply risks out of Brazil.
“While the 2nd largest exporter has capacity to ramp up output (and with Vale still targeting 310-330Mt production in CY20), the uncertainty around the pandemic in the region is a significant supply risk.”
Vale said on Friday it will appeal against the court decision, on the basis that it is already complying with the determinations of the labour inspectors and is taking all necessary measures to protect the health and safety of its employees.
These measures include testing, removing, tracking and treating positive or suspicious cases.
The company said over 75 per cent of its workforce (own and third parties) have been tested, and in Itabira, almost the entire workforce at site was tested.
“Mass testing offers greater transparency of the number of Vale employees who had contact with the virus, which contrasts with the lower incidence in the surrounding communities, where there is no large-scale testing,” the company said.
Brazil has recorded 692,000 cases of COVID-19, the second highest globally, and 36,499 deaths.
