Iron ore prices hit a five-year high

Few commodities have experienced such spectacular price booms this year as iron ore. By early July, the price of this steelmaking raw material for the first time since 2014 exceeded $ 120 per tonne - the culmination of an explosive rally that began earlier this year and has remained almost unabated since then.

Iron ore is one of the most important commodities in the world, especially given its widespread use as the main ingredient in steel. Currently, the world produces about 1.7 billion tons of steel. This process requires about 2 billion tonnes of iron ore, as well as less recycled steel and metallurgical coal.

But the growing global supply shortage this year has triggered skyrocketing prices as tight supply faced increased demand to fuel a powerful bull market. Perhaps more than any other supply-related factor is the production shock that sparked the rally in the first place in late January when a tailings dump collapsed at the Córrego do Feijão mining complex in the Brazilian state of Minas Gerais. The dam was owned by Vale, the world's largest iron ore company.

The disaster not only resulted in widespread loss of life with over 240 reported deaths, but also severely limited Vale's supply of iron ore destined for maritime markets. With the authorities ordering the shutdown of many of Vale's mines in Brazil, including Brookutu, the largest in the state of Minas Gerais, production at nearly one-fourth of the original 4009-tonne 4009-ton production target has been shut down. (an amount equivalent to approximately 6 percent of the total annual world market for iron ore at sea). By February, Vale had announced force majeure in contracts for the sale of several grades of iron ore, while unstable weather conditions in northern Brazil also had a negative impact on the mining company's iron ore output. By Q2, Vale's production rate was 34 percent lower than Q2 2018. The company also posted two consecutive quarters of losses this year, with a second-quarter loss of $ 133 million (versus $ 76 million in net profit for the same quarter in 2018), adding to a whopping $ 1.6 billion in losses. in the first quarter.

Global supply was then weakened by Cyclone Veronica, which hit the west coast of Pilbara in Western Australia in March, forcing large local iron ore mines to halt production. As a result, prices fell above $ 100 per tonne and then climbed even higher in the second quarter.