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Seaborne Iron Ore Deficit Expected to Widen in 2019

Total year-over-year losses of 5% recorded among global iron ore producers in Q1 2019

Hong Kong — Total iron ore production at Vale SA's operations has fallen by 11% to 73 million tonnes (Mt) year over year in the first quarter of 2019 following the Brumadinho dam collapse, according to company reports cited in the latest S&P Global analysis produced by S&P Global Market Intelligence, S&P Global Platts and S&P Global Ratings. As a result of disruption, the seaborne iron ore market is expected to fall into a larger deficit this year than previously anticipated.

Maximilian Court, Senior Commodity Analyst at S&P Global Market Intelligence says: “Seaborne iron ore deficit is expected to widen to approximately 40Mt this year due to disruptions at key global mines. We believe prices for iron ore are likely to remain elevated, due to a number of factors including lower levels of stocks, greater disruption and a change to penalties for alumina.”

Iron ore production disrupted in Australia and Brazil

Data from Panjiva, the supply-chain research unit at S&P Global Market Intelligence, shows that Vale’s exports of iron ore from Brazil have fallen by 34% to 16 Mt year over year in March, the lowest since 2014 as a consequence of multiple mine closures.

S&P Global Market Intelligence lowered Australian and Brazilian iron ore production expectations by 16 Mt and 54 Mt, respectively, following widespread disruption due to operational challenges and cyclone damages.


Alumina levels and penalties on the rise

Due to reduced output of iron ore, end users are looking to secure seaborne cargos with lower alumina because of robust demand and attractive steel margins. S&P Global Platts observed a rise in alumina levels and penalties following the accident, where alumina penalties have tripled and reached a 2019-high on May 16. In addition, bids and offers were also observed for other lower-alumina midgrade alternatives as well as lower-grade, lower-alumina options.

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