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Vale’s Dam Burst Has Yet to Fully Reflect in CLF’s Prices

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Vale’s dam burst

On January 25, a major disaster struck Vale (VALE) when a dam ruptured at its iron ore mine in the Brazilian (EWZ) state of Minas Gerais. Since then, there have been several court injunctions to stop production at various mines and Vale has decommissioned dams, impacting its production.

Vale’s dam burst

When Vale released its Q4 2018 production results yesterday, it said that the annualized impact on production of the dam burst and consequent mine closures is expected to be 92.8 million tons. Also, Vale is expected to first meet the supply requirements of Brazil’s mills, limiting the supply for the rest of the seaborne market.

Vale’s dam burst

The dam burst has taken a significant amount of high-quality iron ore production away from the market, which should support seaborne iron ore prices. Higher iron ore prices are beneficial for Cleveland-Cliffs’ (CLF) realized prices.

Moreover, as Vale is a major producer of iron ore pellets, the lost production includes pellets as well. This reduced pellet production could increase pellet premiums, boosting Cliffs’ realized revenue.

Vale peers Rio Tinto (RIO) and BHP (BHP) are also benefiting from the higher seaborne iron ore prices. To learn more, read Will Iron Ore Prices Breach $100 in the Wake of Vale’s Dam Collapse?

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