The global iron ore market was pitched into turmoil after Brazil’s Vale SA, the world’s largest producer, outlined plans to cut output after a deadly dam breach, buoying shares of rivals as investors weighed the impact of the disruption. Prices soared, with futures rallying more than 9 percent.
Vale will decommission some tailings dams, curbing production by 40 million tons a year, Chief Executive Officer Fabio Schvartsman said at a press conference, citing a plan presented to the Energy and Environment Ministries. The impact will be partially offset by an increase in production from other systems, Vale said. The company had planned to mine 400 million tons this year.
The severity of the fallout will hinge on Vale’s ability, as well as efforts by other miners, to make up the tons that’ll be lost. A sharp reduction in supply, if that happens, would tighten the global seaborne market, aiding Rio Tinto Group, BHP Group and Anglo American Plc, while lifting costs for steelmakers across the globe. One of Vale’s dams collapsed last Friday, hammering the company’s share price and spurring speculation that while the affected operation was minor, the repercussions would affect a greater share of output.
“Vale certainly has the ability to replace 40 million tons in output, and in fact it’d initially have 50 million tons of flexible production,” said Vivek Dhar, an analyst at Commonwealth Bank of Australia. “But the key question is how quickly they’ll be able to compensate that output, bearing in mind social, political pressures, and that investigations are still ongoing.”
On Singapore Exchange Ltd., benchmark futures jumped as much as 9.6 percent to $86.20 a ton, the highest since March 2017, and traded at $81.75 at 3:46 p.m. Futures in Dalian closed 4.7 percent higher. Benchmark ore for immediate delivery jumped 4.6 percent to $83.95 a ton on Wednesday, according to Mysteel.com. High-grade ore rose to $100.30 a ton, the highest since September 2017.