The transoceanic iron ore market will run a deficit of at least 40 million tonnes in 2019, according to forecasts from the British consultancy CRU.
In Brazil, Bradesco BBI has a similar projection: a deficit of 45 million tonnes this year. This situation will cause iron ore prices to remain high throughout the year, ranging from US$80 to US$100 per tonne in the bank’s accounts, and between US$80 and US$90 for the remainder of 2019, in CRU’s projections.
The reduction in iron ore global supply results from two major factors: the Brumadinho tragedy, in Minas Gerais in January, and the outbreak of tropical cyclones in Australia in March.
Erik Hedborg, a senior iron ore analyst at CRU, said there is an increase in iron ore supply in other parts of the world, such as India, China, and Iran, although not enough to compensate for the loss of major producers (Australia and Brazil) resulting in inventory reduction. Destocking will be an additional source of supply.
There is a similar assessment among bank analysts: the inflow of other producers will not be enough to compensate for the deficit. According to Karel Luketic, XP’s mining and steel industry analyst, long-term price visibility (2021-2022) is lacking, inhibiting investments in new iron ore capacities by non-traditional players in the sector.
Itaú BBA also recently pointed out the market’s difficulty in compensating for the loss of iron ore production in Brazil.
“The market will be better balanced next year as Australia’s major producers recover and Vale’s northern system [in Pará] keeps increasing supply,” said Hedborg of CRU. He said the major Australian mining companies are unable to further increase production.
Demand, in turn, has been strong this year, Hedborg said: “Chinese steel companies were able to produce slightly more than in the first quarter of 2018. Following milder restrictions in April, output has soared and we are seeing stronger demand in the short-term. However, demand will be somewhat weaker in the second semester,” said the CRU analyst.
China has been the main source of global demand for minerals and metals. In 2018, Chinese purchases represented 72 percent of global demand for iron ore, 51 percent of demand for nickel and 49 percent for copper.
Hedborg estimated iron ore prices to be “very high” in 2019. However, he said: “We are predicting that prices will fall slightly in the second half of the year as supply outside Minas Gerais recovers, while we see the weakest market in China.”
In his opinion, prices will remain between US$80 and US$90 per tonne for the remainder of the year. “However, things can change quickly, based on new suspensions or mines resuming operations in Brazil,” he said.
Bradesco BBI, in turn, recently increased its average price estimate for iron ore from US$ 80 to US$ 90 per tonne, on a yearly average basis for 2019.
The bank’s report projected that Vale would fail to sell some 60 million tonnes this year, while Australians would fail to place 25 million tonnes on the market as a result of hurricane activity in the country.
Vale tends to be the main loser in this scenario, experts say. It is possible that the company will lose market shares to Australian competitors if it takes longer to resume production.
It may even be overtaken by Rio Tinto as the world’s largest producer of the commodity. The mining company pointed out that Brumadinho’s impact on the company’s iron ore production amounts to 93 million tonnes per year.