The dam-breaking event in Brazil continued to ferment, and the price of iron ore in the outer disk rose sharply. The domestic iron ore futures with a long-term “power reserve†also ushered in the daily limit after the holiday.
On February 11, the domestic iron ore futures traded in a daily limit. The main contract of 1905 rose by 48 yuan/ton or 7.95%, to 652 yuan/ton, a new high since late March 2017.
Analysts pointed out that the Brazilian dam break event or the turning point of Brazil's strengthening of mine supervision will affect the supply of iron ore in the long run. It is expected that the iron ore futures price will be stronger in the next six months.
Frequent incidents
Recently, there have been frequent incidents in the iron ore industry: on January 25, a dam-breaking accident occurred in Brumadinho, Minas Gerais, southeastern Brazil. After the dam breaks, the mud flows down the river and destroys a large number of roads along the way. building. On February 6, Vale officially stated that due to the temporary shutdown of the production of the Brucutu mine, the company has declared force majeure for certain iron ore and pellet-related sales contracts.
The fermentation of the dam-breaking event in Brazil caused the price of iron ore in the outer plate to rise significantly during the Spring Festival holiday. The main contract of iron ore swaps in Singapore increased by 7.79%, and closed at 91.15 US dollars/ton on Friday, setting a new high since August 2014; The 62% iron ore index holiday reflecting the spot price of iron ore has risen by 8.8 US dollars/ton, which led to the domestic iron ore futures directly increasing sharply on the 11th.
"This kind of daily limit is not the first time in the history of iron ore futures. On the night of March 7, 2016, the iron ore futures opened at the same daily limit, and then 380,000 hands were closed. Black varieties such as thread and coke also collectively increase daily limit," said Zhou Yaochen, research director of Tianfeng Futures.
The fiery heat of the iron ore market quickly rose to other varieties of the black plate, and some non-ferrous metals also rose. Wenhua Finance and Economics data show that rebar futures, wire futures, hot rolled coil futures main 1905 contract rose more than 2% yesterday, Shanghai nickel, Shanghai tin main 1905 contract rose more than 1%.
Wang Weimin, head of the asset management department of Liangyun Futures, said that steel was mainly boosted by lower blast furnace operating rates and still strong real estate investment demand. Among non-ferrous metals, nickel is closely related to the dam-breaking event in Brazil, mainly because Vale is one of the largest nickel producers in the world. In 2017, its nickel output was nearly 300,000 tons, accounting for about 15% of the global market share of refined nickel. . The dam-breaking incident in Brazil has caused great public opinion and regulatory pressure on Vale. In the future, the Brazilian government may impose more stringent monitoring measures on the production, transportation and export of Vale and iron ore, and its punishment for Vale. Measures may jeopardize the supply of nickel metal or push up its combined costs, thus providing some support for nickel prices.
Brazil’s dam failure has far-reaching effects
More than 80% of China's iron ore needs to be imported from abroad. According to data released by the General Administration of Customs, the import of iron ore and concentrates reached 1.06 billion tons in 2018, of which about 22% of iron ore came from Brazil. Vale is the world's largest supplier of iron ore, accounting for 80% of Brazil's iron ore production and exports.
Wang Weimin said that since the railways and highways for external transportation after the dam break were blocked, and the business license of the Vale mines in Minas Gerais was revoked or strengthened, this Brazilian dam break event or the Vale Iron ore production capacity has been reduced by 8%-10%, that is, production capacity has been reduced by 30-40 million tons, and exports to China may be reduced by 18 to 24 million tons.
“The current focus is on the 30 million tons reduction in the Brucutu mine, but the Vale announcement has repeatedly expressed dissatisfaction with the cancellation of the Laranjeiras dam operation authorization and stated that appropriate administrative and legal measures will be taken, so this reduction is also There is room for maneuver," said Wang Dong, an analyst at Guangzhou Futures Black.
“The impact of the dam-breaking event in Brazil is far-reaching.†Li Wenzhao, senior analyst of Xingzheng Futures, said that the iron ore supply market is an oligopoly market, and four major iron ore producers, including Vale, are the main suppliers of high-quality mines. . The mines affected by Vale have an annual output of 7.8 million tons in 2017, which has limited impact on the overall market. However, the mine production in 2017 is as high as 26.3 million tons. With the event fermentation, the supervision will be stricter. As the mainstream mines increase production in 2019, the reduction of freshwater valleys will reverse the supply and demand of global iron ore. Moreover, the incident will also attract regulatory attention, making other iron ore producers pay more attention to safe production, which is not good for iron ore production.
Near the end of the production cycle
“The Brazilian dam break event has passed more than ten days. The current price of domestic iron ore futures has gradually digested the expectation of this event on the supply of the market. The dam break in Brazil occurred at the critical stage of the replenishment of the steel mill before the Spring Festival, resulting in The irrational rise of the mine price in a short period of time. As the iron ore cost curve moves up, more non-mainstream mines and domestic mines will gradually resume production, offsetting the supply reduction caused by the Brazilian dam failure event. The ore market has regained a new balance and prices have steadily declined," said Zhou Yaochen.
Wang Weimin said that iron ore futures may still remain at a high level in the next 3-6 months. On the one hand, the Brazilian dam break event will continue to fertilize in the next one year or even longer. Considering the long period of iron ore development and the current high output ratio of global mines, the iron ore supply will definitely be significantly reduced this year. On the other hand, the current demand for steel in the terminal real estate market is still strong, and the demand for steel for infrastructure construction is guaranteed at least in the first half of 2019, which will undoubtedly maintain the demand for iron ore.
Li Wenzhao said that the iron ore industry is at the end of the production increase cycle. Due to the low price of iron ore in 2018 and the loss of importers, the willingness to import iron ore in China is not strong. In October 2018, the inventory of iron ore ports fell all the way. In 2019, the mainstream mines increased production very little. Due to the impact of the Brazilian incident, mainstream mines may reduce production by about 35 million tons. But the rise in mining prices can stimulate the market for non-mainstream mines. Due to the long-term bull market, the potential for increased supply of iron ore is still large, mainly in the non-mainstream mine. Previously, non-mainstream mines have been suppressed by mainstream mines. The Platts Index above $100 can effectively stimulate the production of non-mainstream mines around the world, but this will take at least half a year. Looking ahead, it is expected that iron ore prices will remain strong in the past six months, but it is still necessary to observe demand and the resumption of production of non-mainstream mines.
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