Commodity Market Report

Global iron ore short-term outlook January 2019

31 January 2019

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31 January 2019

Global iron ore short-term outlook January 2019

Report summary

This month's tragic headline news is the collapse of Vale's tailings dam located at the Corrego do Feijao iron ore mine in the state of Minas Gerais. Our initial thoughts on the market impact are discussed in this note, but at the time of writing there are far more questions than answers. Given Vale's intention to decommission all of its upstream tailings dams, we provisionally estimate a net loss to seaborne supply of at least 20 million tonnes in 2019. However, any estimate at this stage is fraught with uncertainty and depends partly on the extent to which inventory can be drawn down across Vale's stockpiles in Brazil, Malaysia and China. The knee-jerk reaction from the market was a $10/t jump in prices to $85/t CFR. We have raised our Q1-19 price forecast to $80/t CFR (previously $68/t). We will review our longer term forecasts as the situation in Minas Gerais evolves.

Brazilian supply shock
- Some initial thoughts on the broader fallout from this tragic event:
- Iron ore supply to tighten and price to rise
- Pellet market - negotiations on hold
- High grade premium supported
- Environmental policy and social/community opposition
- Capital constraints
Chinese demand: the view from the ground
- Hot metal production to grow
- Installation of ultra-low emission (ULE) upgrades in Hebei is supportive of iron ore demand
- Lump demand is on the rise
- Domestic supply back on-line in response to tight low-grade seaborne supply

Tables and charts

This report includes 15 images and tables including:

What is an upstream tailings dam?
Can Vale make up the tonnes?

Ultra-low emissions compliance has exempted mills from winter closures
Tight seaborne supply and rising iron ore prices incentivised domestic mines to restart
Key quarterly forecast
Capesize spot freight rates, US$/wmt, to China (Beilun/Baoshan)
Iron ore inventory at Chinese ports, by source
Trade of iron ore, monthly volume
Steel production, monthly y/y growth
Utilisation rate at Chinese iron ore mines
Trade of iron ore, monthly y/y change
BF utilisation rate in Tangshan, China
Quarterly indicators: iron ore trade, crude steel and hot metal production (Mt)
Forecast data: iron ore trade and hot metal production (Mt)