Iron Ore Under Pressure Over Supply Concerns After Vale Mining Disaster
28 Janeiro 2019 - 2:38PM
Dow Jones News
By David Hodari
LONDON--Iron ore futures jumped on Monday following a fatal dam
failure at one of Vale SA's Brazilian mines.
Futures in the ferrous metal were last up 5.3% at $78.53 a ton,
after a Vale tailings dam burst on Friday at its Feijao mining
complex in Minas Gerais, Brazil, killing at least 60 people.
Hundreds of people were still unaccounted for.
The incident came less than four years after the failure of a
dam jointly owned by Vale and BHP Group Ltd., also in Minas Gerais,
killed 19 people and left hundreds homeless in one of the country's
worst environmental disasters.
While the dam that burst last week was relatively minor in terms
of output, investors are pricing in the potential for stricter
industry oversight going forward that would crimp supply, analysts
said.
"The market's always going to react, but the mine that's
involved is only about 7% of Vale's output and so not massively
material at this stage," said Vivenne Lloyd, senior analyst at
Macquarie. "The probability of more stringent inspections and
potential shutdown of other mines using similar methods has
elevated since the disaster."
Similar "wet" iron ore operations--which require the building of
tailings dams--comprise around half of all Vale operations,
according to Macquarie.
After falling 8.1% on Friday, New York-listed shares in the
Brazilian mining company plunged 19% in premarket trading to
$11.42. That would constitute the weakest closing price in more
than a year.
Increased scrutiny on Vale's operations could affect investor
confidence in the company's stock in the longer term too.
"Although Vale's modest levels of debt should protect the
company's solvency, we expect the aftermath of this incident will
weigh on the equity for the foreseeable future," RBC analysts in a
note.
The incident may both boost steel prices and support the share
prices of Vale's competitors in the coming weeks, other analysts
say.
"While this is clearly a headline negative for steelmakers,
they'll successfully pass on increased cost pressures to their
customers in the coming weeks," said Seth Rosenfeld, equity analyst
at Jefferies. The dam failure "gives them an easy excuse to push up
prices."
The prospect of higher prices ahead and economic stimulus in
China could boost demand for the metal in 2019's second
quarter.
Steel buyers around the world have been living hand to mouth and
are persistently reluctant to sit on supply amid relatively low
prices in recent months, Mr. Rosenfeld said. As a result, he said
many could move to replenish thin inventories before prices extend
their climb
Write to David Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
January 28, 2019 11:23 ET (16:23 GMT)
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