The global iron ore market is likely to have a shortfall following the dam spill and mine curtailments at top supplier Vale SA, according to Fortescue Metals Group Ltd. founder Andrew Forrest, who cautioned that other producers face constraints in boosting output.
“We do have to face the reality of a potential deficit,” Forrest said in a Bloomberg Television interview at the Boao Forum in Hainan province. While the Australian miner is “looking very hard” at how it can help customers, it can’t guarantee it’ll be able to help fill the deficit, according to Forrest.
Iron ore is heading for the biggest quarterly advance since late 2017 as investors seek to gauge the consequences of the disruption in Brazil, with Citigroup Inc. warning the market has yet to see the full impact of the disaster as a looming mid-year crunch will spur a rally to $100 a ton. The comments from Fortescue come during a busy week for the market, with Vale set to report earnings later Wednesday after turning in production data on Tuesday.
In the near term Fortescue can’t easily “turn up the dial” in response, Forrest said, echoing recent comments from executives at Australian shippers Rio Tinto Group and BHP Group that they are not in a position to add substantial tons swiftly. Still, Fortescue’s Chief Operating Officer Greg Lilleyman signalled last week that the company may boost supply from a mine being developed in Australia should the aftershocks of the Brazilian disaster persist.
Benchmark spot ore was at $85.10 a ton on Tuesday, up 17 percent this year, according to Mysteel.com. In the weeks immediately after Vale’s spill, the price rallied to $91.50 in early February, the highest level since March 2017. On Wednesday, futures in Singapore were steady after a two-day drop.
Banks including Credit Suisse Group AG and Morgan Stanley have flagged a deficit, and top exporter Australia raised its price forecast. Vale — which opted not to provide revised 2019 guidance on Tuesday as it detailed output — has shuttered operations at facilities that produce almost 93 million tons a year.
The disaster at Vale has “left a hole in the seaborne market,” Morgan Stanley said in a note this week, estimating the miner’s output will slump 34 million tons this year. While shipments from Brazil were stable in the initial weeks after the accident, there’s been a slowdown since mid-March, the bank said.
Cleveland-Cliffs Inc., the top U.S. producer, has also warned on the outlook. The market has “totally under-appreciated” the disaster’s impact, Chief Executive Officer Lourenco Goncalves said this month. “I have been receiving inquiries from companies that are served by Vale, but we’re sold out.”
Fortescue’s Forrest said that the type of dam that failed in Brazil will likely be abandoned. “Upstream tailings dam will probably become a thing of the past,” he said. “They work theoretically in engineering terms. But as you can see, they haven’t worked practically.”