The price of iron ore rallied to a nearly two-year high Wednesday after the fatal breach of a dam in Brazil late last month forced Vale, a major producer of the metal, to halt production at a key mine.
announced Tuesday that as a result of a temporary suspension of the Brucutu mine production, it had declared force majeure on a number of related iron ore and pellet sales contracts. That means that it is unable to fulfill its contracts because of unforeseeable circumstances.
Just ahead of the announcement, the benchmark Platts IODEX, the spot price of 62% iron- fines delivered to China, was at $86.65 per dry metric ton on Feb. 4—its highest mark since March 2017, according to S&P Global Platts, which hadn’t assessed the price since Monday because of the Lunar New Year holiday. That’s a 14% jump from $75.40 on Jan. 25, the day of the dam breach that reportedly killed more than 100 people.
The February futures contract
was trading at $89.04 in Wednesday dealings on CME Group’s Globex, up about 29% year to date. A settlement around this level would also be the highest since March 2017, according to FactSet data.
Before the accident disrupted iron-ore supplies, “the market was quite balanced with fairly uneventful pricing the past two years,” said Joseph Innace, S&P Global Platts’ content director for Metals Americas.
“Now that Vale has also declared force majeure, some market players are bracing for the possibility of $100 [per dry metric ton] iron ore,” he said. And “seasonally, the global iron ore market does typically rise after the Chinese Lunar Holidays, as buyers tend to return with greater activity.”
Macquarie downgraded Vale’s stock to neutral from outperform and cut its 2019 earnings per share estimate by 5%, citing lower production forecasts, according to a research note dated Jan. 28. Analysts at Macquarie, however, said the direct impact on Vale’s production is “likely to be limited.”
Vale said on Jan. 29 that it plans to “decommission all its dams built by the upstream method,” and that the move would result in a “production stoppage of about 40 million tons of iron ore per year…an impact that will be partially offset by the increase in production of other systems of the company.”
U.S.-listed shares of Vale were trading at $11.61 Wednesday, down 4.1%. They’ve lost about 12% year to date.
Providing critical information for the U.S. trading day. Subscribe to MarketWatch's free Need to Know newsletter. Sign up here.