Goldman, critic agree on iron ore

Bloomberg

Sun, Feb 10, 2019 - Page 5

It took massive output cuts from the world’s largest iron ore producer to get Goldman Sachs Group Inc analysts and their biggest critic to agree on their outlook for the steelmaking ingredient.

Just two months ago, Cleveland-Cliffs Inc chief executive officer Lourenco Goncalves was not shy about calling out Goldman analysts for their iron ore price forecast.

“Let me refresh your minds,” Goncalves said in a presentation at the bank’s metals conference in November last year. “Last year, Goldman Sachs’s Jeff Currie said that I don’t know where prices go — US$65, three months later will be US$60, then it will be US$55 then US$50. It went US$65, US$70, US$75 then US$70 then US$75 so you are wrong, I was right.”

This time around, Goldman analysts led by Currie are predicting a near-term supply shortfall after a fatal dam disaster prompted steep production cuts by Vale SA.

The New York-based bank said that other iron ore producers outside of Brazil will not be able to boost their output fast enough, sending iron ore prices higher.

Goncalves agreed.

Iron ore futures have surged to the highest since 2014 on concern that the increasingly severe crisis at Vale will curtail global supplies, tightening supply.

Prices have climbed more than US$15 dollars a ton since Jan. 24, a day before the dam collapse that triggered Vale’s production cuts.

“The full impact to the iron ore market of the catastrophic events with Vale has not been properly quantified yet,” Goncalves said in an earnings call on Friday. “Another thing that you’re going to see in the world — as a consequence of Vale’s problems in Brazil — we’re going to see not only a shortage of iron ore, but a shortage of pellets.”

Vale’s troubles began late last month when a tailings dam collapsed, killing at least 150 people and leveling part of a town.

The company announced that it is decommissioning dams similar to the one involved in the accident — a move that would cut annual output by 40 million tonnes.

The company has said it plans to offset some of the output loss by ramping up operations elsewhere.

Its fate took a turn for the worse after a court order forced Vale to halt operations at its Brucutu mine, crimping production by another 30 million tonnes and prompting the company to declare force majeure on some of its contracts.

Last month, even before Vale said it is halting operations in Brucutu, Australia & New Zealand Banking Group Ltd analysts were already forecasting a shortfall of 10 million tonnes this year, revising their earlier outlook for a 15 million tonne surplus.

COPPER

Heavy rains and floods that have affected the world’s top copper-producing nation for the past week are forcing companies to halt some operations.

Chilean state-owned copper miner Codelco stopped work at its Chuquicamata and Ministro Hales mines on Thursday night, while Freeport-McMoRan Inc’s El Abra mine has been halted since Monday, the companies said.

“This masks a larger problem because the storm has also impacted southern Peru, with an emergency declared in some areas,” Cesar Perez-Novoa, an analyst at BTG Pactual in Santiago, said by telephone. “It is still too early to quantify the impact of these stoppages.”

Copper for March delivery on Friday fell 1.8 percent to settle at US$2.81 per pound on the New York Mercantile Exchange, up 1.3 percent for the week.

Precious metals:

‧ Spot gold on Friday settled at US$1,313.79 an ounce, down 0.34 percent for the week.

Silver for March delivery on Friday rose 9.6 percent to settle at US$15.81 an ounce on the New York Mercantile Exchange, down 0.8 percent for the week.

Additional reporting by staff writer