blog

Latest from the Quantamize Blog

Less Ore, More Ore, It's Whipsaw Wednesday for Iron Ore: The Ore Score

Jun 19, 2019

We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.
We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.

 

  • Iron ore prices were whipsawed back and forth over the last 12 hours as a number of news story that hit the tape
  • First, on Tuesday evening a report hit the tape that Vale (VALE) of Brazil did not have an agreement with regulators on a timeline to reopen its massive Brucutu mine
  • The Brucutu mine has been shuttered since earlier in the year when a different Vale tailings dam collapsed, killing 270 people
  • In the wake of the dam disaster in January, Vale was forced to shutter almost a third of its capacity, sending iron ore soaring on fears of a supply shortage
  • The news sent iron ore futures soaring 6% this morning; iron ore has risen most of the year on production woes at major producers while China is producing steel at records levels
  • Iron ore is up over 50% in 2019, as the chart below shows

Iron Ore - 62% Fine Ore CFR Qingdao USD - 1 Year

iron ore price

Source: Bloomberg

 

  • Second, Rio Tinto (RIO) cut its production guidance for 2019 to 320 million to 330 million tons, down from earlier guidance of 333 million to 343 million tons.
  • Rio Tinto said operational challenges at its production site were the reason for the revision; iron ore continued strong
  • Then, shortly thereafter, Vale surprised the market announcing that the Supreme Court of Justice removed the injunction that prohibited it from operating the Brucutu mine
  • The court said Vale could return to using the Laranjeiras dam at the Brucutu within 72 hours, something the market was not expecting
  • The news sent iron ore lower, giving up all the day’s gains and sending it lower
  • Vale has yet to indicate how much additional production this will deliver in 2019 and any additional supply will be welcomed by the market
  • Analysts expect ~20 million additional tons of ore in the wake of the news
  • Vale previously gave production guidance of 303 million to 333 million tons, down from well over 400 million tons it expected before the dam disaster

 

Iron ore fun fact:  Rio Tinto's ADR symbol RIO used to be Vale's ADR symbol when it had its old name, Vale do Rio Doce

 

Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS
Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS