Iron Ore prices have risen almost 50 percent across most markets since the lows of November 2018, with spot prices for the ferrous metal now trading around $90 US a tonne.
Much of the recent gain in prices can be put down to the collapse of a dam at Brumadinho, a Vale SA run mine in Brazil in late January. The collapse was a human and environmental tragedy, causing over 200 deaths, and it led Vale to close dams at over a dozen mines, causing a spike in market prices for iron ore.
However, it has now been a few months, and Vale is starting to reopen closed mines. Last week Vale also received the go-ahead to restart mining at its closed Brazilian Brucutu mine. The mine will add 30 million tonnes per year of iron ore back into the market, lifting global supply levels.
There was also Cyclone Veronica, which disrupted exports from Port Headland in March, adding to the potential shortage in spot iron ore markets, and pushing prices higher again. However, this disruption is also now in the past.
Many analysts have been forecasting lower iron ore prices for some time and have taken the recent Brucutu reopening as another opportunity to sound the alarm on high prices.
For example, UBS analysts recently came out and stated that “in our opinion, the iron ore supply disruptions in 2019 will not have a material long-term impact on the trade”. They are “looking for an average price of $US83 a tonne in 2019.”
Analysts at PhillipCapital are also bearish on iron ore prices from the current level, stating that “The price of iron ore is inflated. We still see meaningful downside for commodity prices from current levels”. They forecast that iron ore prices will average $78 US a tonne for 2019.
At the start of April, Goldman Sachs upped their 12-month iron ore price forecast from $65US a tonne to $70 US a tonne – which is a significant drop from current market prices.
Despite this, Fortescue remains positive, suggesting that the Brucutu reopening will not affect prices. Fortescue Metals Group chief executive Elizabeth Gaines speaking at the release of the miner’s March quarter results said that “One of the things about the restart of the Brucutu mine that Vale have announced is they haven’t changed their guidance on the impact of shipments”.
“They had 93 million tonnes of production that has been shut as a consequence of the event earlier this year, 30 million tonnes coming back on. They haven’t changed their guidance from 50 to 75 million tonnes”, she added.
Also optimistic was a recent research note from Macquarie Group analysts, suggesting that BHP would outperform in the twelve-months ahead, with a price target of $41 per share.
Regardless, it seems unlikely that iron ore prices will progress too far from here.
Sam Green is an advisor at TradersCircle.
