Iron Ore Nears Five-Year High

Trade concerns depress metals markets but supply problems in Brazil see iron ore rise to its highest level since August 2014, and Rio Tinto orders 20 more autonomous trucks for the Pilbara.

Go to the profile of Chris Hinde
May 13, 2019
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Restrictions on iron-ore mining in Brazil have seen the steel-making metal rise to a near five-year high. This was compounded on Tuesday when Vale SA announced that production this year would be towards the lower end of a 370-332 Mt range because of a legal setback — the previous day a court in Minas Gerais had quashed an earlier ruling allowing the restart of the 30 Mt/y Brucutu mine (one of the operations impacted by Vale's dam disaster in January). Iron ore (62% Fe) rose 0.5% last week to close in London on Friday at US$95.2/t. This is almost the level of August 2014 as the price declined from a high of over US$140/t in August 2013 to a low of under US$35/t in December 2015.

The price of gold and aluminium also improved last week, up 1.2% to US$1,286/oz and 0.7% to US$1,814/t respectively. Other major metals were weak, however, with zinc slumping 5.0% to US$2,635/t, nickel 2.1% weaker at US$11,950/t and copper 1.5% lower at US$6,140/t.

The price of major metals suffered at the start of last week from tweets made on Sunday, May 5, by President Trump alleging that China was seeking to "renegotiate" parts of a draft trade agreement that had previously been agreed. This came as a shock to markets after months of suggestions that the trade talks were progressing well.

By the end of the week the US had raised tariff levels from 10% to 25% on US$200 billion of Chinese goods, and is about to release details of a further US$300 billion of Chinese imports that will be subject to a 25% tariff if there is no progress in the trade negotiations. There was positive news over the weekend, however, when the director of the National Economic Council, Larry Kudlow, raised the prospect of a meeting between President Trump and his China counterpart, Xi Jinping, at the G20 summit next month.

The Financial Times commented that the US and China have a three-week window to strike a pragmatic deal before the higher tariffs will start to bite — this is the average shipping time for Chinese goods to the US. The newspaper also noted that the sudden prospect of tit-for-tat trade sanctions had rattled equity markets, and is threatening one of the best starts to a year for global equities in nearly half a century.

President Trump's latest tweets came on top of an announcement that global trade has slowed sharply since the trade dispute between the US and China escalated in the middle of last year. Global trade volumes are currently down by over 1% year-on-year, having been growing at over 4% per annum until the end of last year. US exports to China were down 30% in the first quarter, with Chinese exports to the US down 9%.

There is good news, however, from Germany, with Europe's largest economy reporting an unexpected rise in exports in March — up 1.9% from March last year. The country's industrial output also rose, up 0.5% compared with February. This adds to recent indications that the German economy is showing more resilience than previously forecast.

Industry News

Rio Tinto is facing indirect shareholder opposition to its management of the US$5.3 billion Oyu Tolgoi operation at the annual general meeting tomorrow, May 14, of 50.8%-owned Turquoise Hill. The Toronto-based subsidiary owns 66% of the underground copper mine in Mongolia, where first production has been delayed by a year until 2022. SailingStone Capital Partners, which owns 10.9% of Turquoise Hill, is planning to oppose re-election of the company's four independent directors, who, it says, are not acting in the interest of all shareholders.

A more upbeat development for Rio Tinto came with news that it has agreed to buy a fleet of autonomous trucks and other mining equipment from Caterpillar for its US$2.6 billion Koodaideri iron ore mine in Western Australia. Caterpillar will supply Rio Tinto with 20 autonomous trucks and four autonomous blast drills in addition to loaders, dozers, graders, water carts and diggers for the mine, where first production is expected to start by the end of 2021. Rio Tinto said Caterpillar's "intelligent" machinery will improve productivity across its entire iron ore network in the Pilbara.

Indonesia has reduced its monthly coal benchmark price by US$7/t to US$81.86/t. This is the ninth monthly decrease, with the Energy Ministry citing coal-import restrictions in China and India, as well as competition in other markets from Australia and Russia. 

The London Metal Exchange has appointed a former banker, Gay Huey Evans, as its next chairman. In December, Ms Huey Evans will become the first female chairman in the LME's 142-year history.

Go to the profile of Chris Hinde

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.

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