RIO DE JANEIRO – Vale did something it said it wasn’t going to do in the wake of the deadly tailings dam collapse in Brazil last month – declare force majeure on some of its iron ore contracts. Futures in Singapore gained.
The Brazilian mining giant invoked the clause a day after a judge forced it to suspend some operations at its Brucutu mine – a move that it said would result in an annual production loss of 30-million metric tons. The court order was issued to help improve safety following the fatal breakdown of one of Vale’s tailings dam in Minas Gerais state that left more than 130 people dead.
The Rio de Janeiro-based company said only last week – before the judge’s ruling – that it wouldn’t declare force majeure, which protects a party from liability if it can’t fulfill a contract for reasons beyond its control.
Vale’s failure to deliver on its supply contracts could trigger a scramble for the steelmaking ingredient in a market already reeling after the company’s earlier announcement that it would cut output by 40-million tons as it seeks to shore up dams that hold waste. Iron ore prices have rallied more than $10 per metric ton in Singapore since January 25, when the dam broke.
‘CLEARLY BEING IMPACTED’
“Iron ore prices are likely to continue trending higher, as production is clearly being impacted above and beyond just the roughly eight-million tons per year from the Feijao mine, where the tragedy first occurred," Jeremy Sussman, an analyst with Clarksons Platou Securities, said in an email Tuesday.
On Wednesday, iron ore futures gained as much as 0.9% to $86.88 a ton on Singapore Exchange, and traded at $86.35 as of 8:26 a.m. local time, near the highest since March 2017. Volumes were muted as many parts of Asia, including Singapore and China, are on holiday to mark the Lunar New Year.
Vale shares have fallen about 21% since January 24, a day before the dam collapse, while its rivals in Australia have benefited from higher prices and signs of a tightening global seaborne market. Rio Tinto Group extended recent gains to the highest since 2008, and BHP Group hit the highest since 2014.
The output loss from Brucutu mine, its largest in Minas Gerais, is on top of the 40-million tons in cuts announced by the company as it decommissions dams similar to the one involved in the accident. Shutting down Brucutu could “wipe out” almost all the forecast global production growth in the steelmaking ingredient, Barclays analyst Ian Littlewood said Monday.
ArcelorMittal, Glencore and Ternium are among Vale’s biggest customers, according to data compiled by Bloomberg. The force majeure may also affect ore buyers in China, the world’s largest steelmaker.