Brazil and Australia Pursue Different Paths in Iron Ore Market During Pandemic

RIO DE JANEIRO, BRAZIL – The global iron ore market now operates with two very different exporters. While Australia’s largest mining companies are running full steam and the country is showing evidence of record exports, Brazil’s export flow has contracted due to the impact of the coronavirus pandemic on operations.

The contrast between the two countries – which account for over 80 percent of global iron ore exports – matches increased demand in China, which has helped raise spot prices to US$100 (R$500) a ton. Goldman Sachs estimates that with China’s strong steel production and underperformance in Brazil, the market is expected to maintain a deficit this month and in July before a surplus is again recorded.

Australia’s exports totaled 79.7 million tons in May, according to preliminary figures from Global Ports compiled by Bloomberg. The volume exceeded 76.5 million tons in the same period of last year and would be the highest ever recorded, according to official data until March this year. Australia is home to mining giants such as BHP, Rio Tinto, and Fortescue Metals.

The picture is very different in Brazil, where sales are controlled by Vale (VALE3). In the year, the volumes are down 13 percent compared to 2019, according to government data. The most recent report states that exports were only 21.5 million tons in May compared to 29.9 million tons in the same month last year.

While the Covid-19 “seems to have had little impact on Australian mining companies,” Brazilian volumes “are still somewhat lower,” although they have recovered in the past two weeks, according to Macquarie Wealth Management. For Vale to meet the goal, it needs to export over six million tons per week for the remainder of the year, a pace that has yet to be achieved in 2020, Macquarie said in a report on June 2nd.

Goldman Sachs outlook

Global shipments are expected to rebound in the second semester, leading to a transatlantic surplus and price pressure, according to Goldman Sachs, which projected Brazil’s exports to increase from 83 million tons in the second quarter to over 100 million tons in each of the following quarters.

“Now we see 2020 unfolding like 2019: big deficit in the first half, followed by a surplus in the second half,” Goldman Sachs analysts said in a report on Wednesday. The bank projects ore prices at US$90 this quarter, US$85 in the third quarter, and US$80 in the last three months of the year.

Source: Bloomberg