Australia’s iron ore miners are down today.
Why are iron ore producers down?
It has to do with Brazilian iron ore giant Vale announcing they will be gradually reopening their activities in the Itabira Complex. Brazil is the second largest iron ore exporting country in the world, with Australia in first place.
Production at Itabira stopped on 5 June this year, after a court ordered its closure when several workers tested positive for coronavirus. According to Vale, the court approved the reopening yesterday after the company increased measures to reduce infection risks.
Vale’s iron ore production has taken a hit from the pandemic. Earlier this year, Vale revised their 2020 production guidelines down to 310–330 million tonnes from their previous forecast of 340–355 million tonnes.
This comes after production for 2019 was 302 million tonnes, 21.5% lower than in 2018, when Vale suffered production disruptions from severe weather and a dam bursting.
Last year, Itabira produced 36 million tonnes of iron ore, or around 12% of Vale’s iron ore production. Vale revealed in their website that Itabira’s recent closure affected production by less than a million tonnes, which means no change to their 2020 guidance of 310–330 million tonnes.
What could happen next?
So far, Australian miners are coping with the outbreak, but the pandemic keeps hitting both supply and demand.
While demand from China has increased after the country reopened its economy, we could be looking at a decrease in demand growth by the end of the year as the global economy slows.
There are still questions on whether Vale will suffer more supply disruptions as virus infections continue to increase in Brazil. But with Vale maintaining its guidance, it will keep a cap on iron ore prices.
In our free report ‘Aussie Iron Ore Crash 2020’, Rum Rebellion’s Lachlann Tierney explains why we could see lower iron ore prices into 2021, and offers three other investment ideas that could fare better.
To download his free report click here.