Brazil's Coronavirus Crisis Disrupts Iron-Ore Market; Prices Surge -- Update
By Joe Wallace
Brazil's deadly coronavirus outbreak has disrupted global
supplies of iron ore just as demand from China is revving up,
pushing the price of the steel ingredient to a seven-month
Iron ore is one of the most heavily traded commodities and can
influence the price of materials used in everything from buildings
to cars. Front-month futures for ore with 62% iron content jumped
10% to nearly Yen759 ($107) a metric ton Wednesday on China's
Dalian Commodity Exchange. That is their highest closing price
since October 2019.
Prices have risen 20% since early April, driven by squeezed
supplies from Brazil, which dominates the iron-ore mining industry
along with Australia. The rally is also an indication that China's
economy is gathering momentum, after a downturn at the start of the
year when swaths of the country went into lockdown to stop the
The iron-ore market has been remarkably robust, said John Meyer,
head of research at SP Angel, a brokerage for small mining
companies in London. "The steel producers in China, they slowed
things down during lockdown but have been pretty quick in getting
back up to production."
Higher iron-ore prices will add to pressure on profits at
steelmakers globally, but are a boon for miners including BHP Group
and Rio Tinto PLC. Rio Tinto, one of the world's top exporters of
the material, has previously said an extra $10 per ton of iron ore
generates $2 billion in free cash flow.
Iron-ore shipments from Brazil have fallen by almost a quarter
in May because of the country's coronavirus crisis, which is one of
the worst in the world, said Macquarie analyst Serafino Capoferri.
Brazil exported 15.27 million metric tons of iron ore in the first
three weeks of May, he said. That is down from 19.4 million tons in
the comparable period of 2019, when exports were already lower than
normal following the fatal dam collapse at Vale SA's mine in
"The situation in Brazil is pretty much out of control," said
Mr. Capoferri. He said the pandemic had caused difficulties at the
country's mines, which are more labor-intensive and require people
to work closer together than mines in Australia.
Vale has said the coronavirus will reduce the amount of iron it
is able to produce this year. The company said in late April it
will mine between 345 million and 370 million tons of iron-ore
powder and pellets in 2020, around 40 million tons less that it
previously expected. Brazil as a whole mined 480 million tons of
iron ore in 2019, according to the U.S. Geological Survey, a fifth
of global production and second only to Australia.
Brazil had 271,885 confirmed cases of coronavirus as of
Wednesday, according to the Johns Hopkins University, the
third-highest in the world. Nearly 18,000 people there were
confirmed to have died of Covid-19, and the true number may be far
higher because the country does less testing than the U.S. and
The squeeze on supplies has struck at the same time as demand
for the raw material from China's steel sector is picking up. Steel
mills there produced 85 million tons of crude steel in April,
according to the National Bureau of Statistics, almost 8% higher
than the 79 million tons made in March.
That trend will continue if the government unveils measures to
boost the economy at the annual legislative conclave starting
Friday, analysts said. Other markets that are highly exposed to
China's commodity-intensive economy, including copper and crude
oil, have risen in recent weeks.
Also boosting iron-ore demand: a shortage of recycled steel
stemming from disruptions in the scrap-metal industry, said Mr.
Capoferri. That has led to difficulties at electric-arc furnaces,
which use less iron ore and more scrap steel than traditional steel
Strong iron-ore prices have rippled into the currency market,
supporting the Australian dollar during a dispute with China over
Australia's push for an international investigation into the start
of the coronavirus crisis. The Australian dollar has risen 4.1%
against the U.S. dollar over the past month, making it the
second-best performer among developed-market currencies.
Write to Joe Wallace at Joe.Wallace@wsj.com
(END) Dow Jones Newswires
May 20, 2020 11:09 ET (15:09 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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