The world’s top two iron ore miners struggled to keep up with strong Chinese demand in the first quarter of this year, hit by operational challenges and weather disruptions, in a positive sign for prices that are at decade highs.
Brazil’s Vale SA churned out less ore than expected last quarter after lower productivity at one mine and a ship loader fire, with its recovery from an early 2019 tailings dam disaster proving a little slower than expected.
Rio Tinto Group’s shipments were disrupted by wetter-than-average weather at its Pilbara operations in Western Australia.
Benchmark iron ore on Monday surged more than US$180 per tonne — the highest since May 2011 — following news that China’s crude steel production jumped 19 percent last month from a year earlier — to near a record.
China’s output of the alloy is booming at the same time as a pollution crackdown has lifted prices and benefited profit margins at mills.
Vale and Rio both maintained their forecasts for full-year production, although a slower-than-expected recovery at Vale could see the market reset its expectations.
Rio said that its guidance for annual output of up to 340 million tonnes was subject to logistical risks associated with bringing 90 million tonnes of replacement mine capacity on line.
This month, Typhoon Surigae affected its Pilbara mine and port operations, it added.
Iron ore futures in Singapore yesterday rose as much as 3.7 percent to US$182.80 per tonne before trading at US$182.75 by 2:48pm. Prices in Dalian gained as much as 4.7 percent, while hot-rolled coil and rebar both rose in Shanghai. Rio Tinto’s shares settled 0.5 percent lower in Sydney.
Steel prices in China finished the quarter at decade highs, as construction activity and demand in the first quarter exceeded both last year and 2019, Rio said.
Strong demand and margins — at their highest since 2018 — have lifted demand for higher quality iron ore products and the nation’s renewed focus on reducing steelmaking emissions would likely restrain exports this year, supporting margins globally, the firm said.
The short-term outlook for iron ore prices remained strong, as Chinese steel mills were content to accept current high prices for their main feedstock while their margins were so strong, ANZ Banking Group Ltd senior commodities strategist Daniel Hynes said.
However, Hyne added that the cost of ore is now well above fair value, with the risk of a pullback later in the year if Beijing’s plans to curb steel production to control greenhouse gas emissions start to affect demand.
“If we saw a 1 percent fall in Chinese steel production that would potentially wipe out about 15 to 20 million tonnes of iron ore,” he said.
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