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Montevideo, February 17th 2019 - 16:03 UTC

China iron ore futures soar on concerns over the Vale tragedy in Brazil

Tuesday, February 12th 2019 - 09:24 UTC
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The most-active iron ore futures for May delivery on the Dalian Commodity Exchange hit a record of 652 yuan (US$ 96.26) a ton The most-active iron ore futures for May delivery on the Dalian Commodity Exchange hit a record of 652 yuan (US$ 96.26) a ton

China iron ore futures rose to a record on Monday, the first session after a week-long national holiday, on concerns that supply from Brazil, the country’s second-largest ore supplier, may decline after a fatal dam accident at a Vale mine.

The most-active iron ore futures for May delivery on the Dalian Commodity Exchange rose to their daily trading limit when the market opened at 0100 GMT, hitting a record of 652 yuan (US$ 96.26) a ton.

Contracts for March, July, September and November delivery also climbed to their daily limit during early trade on Monday.

“Price hiking today is driven by both real supply gap and speculative sentiment among investors,” said a Shanghai-based iron ore trader.

The Brazilian government last week ordered Vale to stop using eight dams used to hold tailing, or mine waste, after a dam collapsed on Jan. 25 at its Corrego do Feijao mine that likely killed more than 300 people, the country’s worst mining disaster.

The closures will affect production of 9% of the company’s annual iron ore output and caused Vale to declare force majeure, a legal ruling that means the company is unable to fulfill its contracts due to unforeseen circumstances, on its export contracts.

Analysts have revised their forecasts of affected iron ore output to 70 million tons from 40 million tons two weeks ago.

“It is hard for Vale to resume normal operation in the short term. The widened supply gap will...intensify conflicts on the fundamental basis and push up prices in the market,” said analysts from Jinrui Futures in a note.

China’s top steelmaking city Tangshan will impose production restrictions on its heavy industry from April to September in order to improve its air quality. Steel mills in the city will be ordered to halve sintering production, a process that prepares raw iron ore for smelting into steel, and to continue enforcing operation curbs on blast furnaces.

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