Vale Port Halt Spurs Iron Rally Amid Trade Disruption Fearsby and
Judge issues order after iron ore, coal dust found in sea
Vale plans all legal measures to get activity reestablished
The global iron ore trade may be disrupted after Vale SA, the largest producer, was ordered by a Brazilian court to temporarily close one of its main ports following alleged environmental breaches. Prices of the raw material gained along with miners’ shares.
The court in Brazil’s Espirito Santo state ordered a halt to export and import activities through Tubarao after elevated levels of iron ore and coal dust were detected. Vale received the news from federal police “with surprise” and will use “all appropriate legal measures to ensure the re-establishment of its activities,” its said in a statement Thursday.
Iron ore has plunged over the past three years as the world’s top producers including Vale and rivals BHP Billiton Ltd. and Rio Tinto Group in Australia boosted low-cost supply, spurring a glut just as China’s growth cooled. The impact from Tubarao would be determined by the duration of any closure and how the legal case developed, according to Citigroup Inc., which estimated that the facility handled about 110 million tons of ore a year. That’s about 8 percent of global shipments, according to Bloomberg calculations.
Should there be a halt of several weeks, “you would see a very significant reaction,” Citigroup analyst Ivan Szpakowski said in Hong Kong. Still, “you’ve had one or two instances in the past where Brazil has ordered ports temporarily shut but companies have been able to get an injunction for operations to continue while the legal case is under further review. If that happens, it won’t actually affect the market from a fundamental standpoint.”
The SGX AsiaClear iron ore contract in Singapore rallied as much as 6.9 percent to $39.90 a ton on Friday, while futures on the Dalian Commodity Exchange rose as much as 3.2 percent. Iron ore with 62 percent content delivered to the Chinese port of Qingdao rose 2.2 percent to $42.20 a ton, according to Metal Bulletin Ltd.
The Tubarao ruling adds to Vale’s woes after a deadly dam breach at its Samarco Mineracao SA joint venture last year, and as the company faces a possible rating downgrade by Moody’s Investors Service driven by the commodity slump. Vale shares have slumped 34 percent since the start of 2016, extending three years of losses. They fell 1.9 percent in Sao Paulo on Friday.
In the decision, federal Judge Marcus Vinicius Costa outlined fines for each day Vale fails to comply with the halting of port activities.
Vale has continually invested in environmental controls at the port in recent years, the Rio de Janeiro-based miner said in a separate statement. Steel-making giant ArcelorMittal also uses Tubarao, although the court’s decision won’t immediately affect its activities, it said in a statement. With the suspension that began Thursday morning, Pier II at Tubarao will cease to ship about 200,00 tons of iron ore a day , Vale said in an e-mailed response to questions.
Tubarao handles Vale’s Southeastern system operations, which could continue mining for four days and stockpiling material near the port, Banco Bradesco BBI analysts including Alan Glezer wrote in a note to clients.
Vale may be able to manage some of the short-term impact from disruption at Tubarao by tapping its distribution center for Asia, which is sited in Malaysia and has extensive stockpiles, according to Philip Kirchlechner, director of Iron Ore Research Pty and former chief iron ore representative for Rio in Shanghai.
“This will enable them to fulfill their short-term contractual commitments,” Kirchlechner said by e-mail on Friday. “With hindsight this was actually quite a smart decision to set up this platform, originally set up for blending and transshipping but now it is actually becoming a useful buffer to absorb short-term supply disruptions.”
Miners climbed in Sydney on Friday, joining a region-wide rally as oil rose. Rio gained as much as 4.1 percent while BHP, which also produces energy, surged as much as 8.7 percent and Fortescue Metals Group Ltd. jumped 8.7 percent. The trio are Australia’s three largest iron ore shippers.
“If it’s only for a few days, we won’t see too much of a response in prices; Vale would be able to make up any lost tons,” said Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd. “However, any longer than that, could start having an impact.”