Production slumps in Brazil and tropical storms hitting Australia have caused an iron ore shortage that has driven up prices in China by 10 per cent at a time of surging steel demand.
Senior analyst Erik Hedborg at commodity firm CRU told CNBC that China's strong economy and heavy investment in infrastructure projects had led to greater demand for steel, just as production from Brazilian mines had fallen and a series of storms hit western Australia. The two countries account for 82 per cent of seaborne iron ore exports in 2019, according to the World Steel Association.
Ore exports from Brazil hit a six-month low in November, while Brazilian firm Vale, the world's second-largest producer, cut its supply forecasts.
“We are going to see lower production from Brazil than people had expected, so that is going to continue to 2021, and we are seeing issues to restart mines in Brazil, for example, and Vale will remain operating at reduced levels in the coming year,” Hedborg said.
The analyst predicted that strong demand for steel in construction and infrastructure projects was likely to continue, which coupled with a long-term downturn in production would keep prices high.
“There is now a tropical storm approaching the coast where all the iron ore is shipped from, and two of the biggest ports in Australia have now been shut, and they together account for just over half of global iron ore supply,” Hedborg said.© REUTERS / MIKE SEGAR
He stressed that cyclones are common in the first quarter of the year, adding: “This right now is a sign that we could see a pretty problematic cyclone season in Australia.”