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How Vale’s Dam Burst Could Affect Iron Ore Prices

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Jan. 28 2019, Updated 3:55 p.m. ET

Vale’s dam burst

On January 25, another disaster struck Vale (VALE) when a dam ruptured at its iron ore mine in Brazil’s Minas Gerais state. In November 2015, a dam jointly owned by Vale and BHP (BHP) burst. As of the latest reports, at least 200 people are missing and seven are dead from the wave of mud that spread into nearby areas following the burst. Vale stock fell 8% after news of the accident, which is also expected to impact iron ore prices.

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Impact on iron ore prices

The mine where the accident happened produced ~7.8 million tons of iron ore in 2017. While the company has not commented on the accident’s impact on production, such accidents typically result in production being suspended for an extended period. Therefore, Vale’s shipments could also be impacted, hampering short-term supply. Moreover, as S&P Global Platts has noted, “there may be stronger steel-related demand as Chinese plants restock and operate at higher capacity” in March, which could create a temporary demand-supply disequilibrium that boosts iron ore prices (XME).

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