Global Iron Ore Prices Likely To Be Supported By Weather Disruption – Again

by Stuart Burns on

2011 was a year plagued by bad weather — particularly in Asia and Australia — that impacted metals prices, and 2012 is starting off on the same foot.

A series of Reuters reports details problems first in Australia, where tropical cyclone Heidi lashed the west Australian coast last Thursday with winds up to 75 mph, closing the world’s biggest iron ore export terminals; and secondly in Brazil, where Vale said on Wednesday it halted some iron ore shipments due to heavy seasonal rainfall that has killed dozens of people and made mining hazardous.

Vale said it will lose an estimated 2 million metric tons of ore shipments, the equivalent of nearly 1 percent of its annual output, due to the rains that have affected its operations in the southeastern region of the country.

The storms in Australia center around Port Hedland, the region’s largest iron ore terminal, exporting around 240 million tons of ore a year; but the storm estimated as only a Category 2 was expected to weaken as it passed over land. At this stage no estimates of damage have been given, but the port is unlikely to be closed for long.

Australia’s second- and third-biggest iron ore miners, BHP Billiton and Fortescue Metals Group, both export through Port Hedland, which handled a record 60.9 million tons of iron ore in the last quarter, the bulk of which was shipped to China.

Iron ore prices are near a seven-week high at around $142/ton, although that is still nearly 20 percent down on 2011 highs as demand has slackened and supply has generally improved since early 2011.

So traders are not expecting a sharp boost from the supply disruption, given ample port stocks in top buyer China and slow demand from Chinese mills ahead of the Lunar New Year, Reuters said. The length of time it takes Brazilian shipments to reach China, some 30-40 days, also means any impact from the reduced supply may only be felt in February after the Lunar New Year.

Apparently, traders report there are large stocks sitting in bonded store at Chinese ports, including some 350,000 tons of ore from Vale’s first Valemax 388,000-ton ore carrier, which finally unloaded at the end of December after many delays.

Vale is said to be intending to sell the cargo at spot, but is waiting for better prices after the Lunar New Year holidays; the miner may also have one eye on the supply disruptions in Australia and Brazil, so expect these disruptions to lend price support, if not an outright price rise come next month.

It has to be said that in the face of softening demand, recent strength in the iron ore price is hard to understand. Producers are naturally positive, but steel production in the world’s largest steel market and largest buyer of seaborne iron ore, China, are looking less bullish this year than last.

–Stuart Burns

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