Macquarie Research assesses global iron ore market

Spot iron ore prices rose from US$75 per tonne to US$95 per tonne in the weeks following the Brumadinho dam disaster at Vale’s (NYSE: VALE) Feijao iron ore mine in Brazil, before settling in at about US$85 per tonne, according to the latest research on the global iron ore market by the Macquarie Group.

Spot prices are now back up at the US$95 per tonne level as lower shipment volumes out of Australia, mainly due to Cyclone Veronica, have contributed to supply disruptions from Brazil, analysts at the Australian investment bank and financial services company report.

In addition, premiums for high-grade ore and discounts for lower grade ore have shrunk since the Brumadinho tragedy, Macquarie says. Prices have risen by about 35% year-to-date for lower grade ore, while the premium for high-grade ore has increased by 23% year to date.

Vale’s share of total shipments from Brazil has dropped to 50% from a peak of about 90%, the report states. “While initially the quantum of decline was managed by the selling of stockpiles, recent sharp declines shows the extent of the supply disruption.”

The supply-demand dynamics benefit Australia’s iron ore miners.

“At spot prices, all covered Australian iron ore miners see a substantial increase in forecast calendar year earnings per share,” the report states. “BHP, Rio Tinto, and Mineral Resources Inc. see CY19 EPS increase by about 30% each, while the pure-play exposure is highlighted in Fortescue Metals Group and Mt. Gibson Iron as CY19 increases by 60% and 120% respectively in a spot scenario.”