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Why Iron Ore Prices Are Bucking the Downtrend in Metals Prices

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May. 28 2019, Updated 11:43 a.m. ET

Iron ore prices

As we discussed in Why Iron Ore Prices Could Have more Upside after Breaching $100, iron ore supply tightness and continued strong demand from China have driven iron ore prices above $100 for the first time in the last five years. Many analysts believe that the current strength in iron ore prices is here to stay.

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Supply tightness

While on the one hand, supply tightness is weighing on iron ore prices (XME), on the other, resilient demand from China (FXI) has come to support them. On May 16, Vale (VALE) told prosecutors that one of its dams was at risk of rupturing at its Gongo Soco mine. Due to the ongoing safety concerns at Brazilian mines, the iron ore market could remain tighter for longer.

Iron ore miners’ supply disruptions

During its fourth-quarter earnings release, Vale estimated a volume decline of 75 million more tons than its previous estimation. Other seaborne miners have also flagged temporary disruptions that could affect their shipments in 2019.

BHP Billiton (BHP) expects a decline of 6 million–8 million tons of iron ore. Its port and rail operations are running at reduced rates due to flooding, which will affect its overall shipments. The estimated impact on Rio Tinto’s (RIO) production is even higher. Due to the combined impact of Cyclone Veronica and a fire at one of its ports in January, Rio is expecting an output cut of 14 million tons in 2019.

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