Will the Vale Dam Disaster Reverberate on the Iron Ore Market?

Vale S.A, the world’s biggest Iron ore producer in Brazil, faced a deadly mining accident in January 2019. This is the second major tailings disaster for Vale in less than four years. This incident is predicted to cause a rise in the iron ore price.

Vale’s Iron Ore Production to sink:

Brazil is the second largest producer of Iron ore in the world. The Vale’s dam Brumadinho is a tailing dam that got collapsed on January 25 2019. This incident buried more than 200 people and buildings at Brumadinho. This has led to the degradation of Iron ore Production in Brazil. It is also predicted that the Vale Company’s iron ore production is set to fall by 21% that was planned for this year.

Brazil, the Producers of High-Grade Iron Ore:

Vale produces the most high-grade iron ore in the world than its competitor Rio Tinto and BHP Group from Australia. In 2018, it was found that the iron ore produced from Brazil consisted of 64.5% of iron content, when compared to Australia it was 59.5%.
 
Disaster affects Steel Production:

The dam collapse would majorly affect the steel production as Iron ore is used as the main raw material. Brazil produces high graded iron ore that is mostly preferred by China, as it is the main consumer of high graded iron ore. The high graded iron ore will maximize their output and reduces the usage of coal minimizing the air pollution. Now, the Chinese Steel Mills have to substitute the high-grade iron ore with a lower grade.

Restrictions on using Dam:

The impact of this disaster restricted the use of tailing dams in Brazil. On considering the safety, nearly 13 tailing dams of Vale was asked by the government to freeze their operation. The design of upstream dam construction is now banned in Chile, Peru and other earthquake-prone countries.

BHP Group and Rio Tinto are expected to raise the Shipments:

The Operations halt in Vale and ban of certain dams holding mining waste is a great threat to the global iron ore market. The world biggest miner BHP Group and Rio Tinto are now expected to fill the gap on maximizing the shipments of iron ore. If the supply of iron ore is stopped from Vale then the dependency on BHP and Rio Tinto iron ore will get increased.

Iron Ore Price Escalated:

This disaster made a drastic change on iron ore supply, prices and quality. The supply disruption of Iron ore has resulted in the increase of the Iron price. The price of iron ore has jumped above $90 per tonne. This increase in price will lead to a rise in the production cost which will put pressure on the iron ore market. Due to this increase in price, the purchase of iron ore in China has been slowed down and it is looking for cheaper alternatives.

Looking for New sources:

Mills are avoiding the major suppliers like Vale, Rio Tinto, BHP Group and FMG. They are looking for the cheaper ore from small miners in Australia, South Africa, India and Indonesia. Mills are also likely to depend on iron sands and steel scraps. The Increase in price can be limited only if the operations of vale dams resumes its operation. To overcome this, the usage of scrap metal can be encouraged which in turn will increase the output and reduce the production cost. The usage of steel scraps instead of Iron ore would reduce the demand and will drop the price of iron ore.