SHARES in Kumba Iron Ore recorded a new year-to-date high following supply disruptions at the weekend which took the price of the steel feed ingredient through $100 per ton.
The stock was just over 3% higher just prior to the close of trade in Johannesburg at R510,51/share. This was a shade below its 12-month high of July last year prior to the Anglo American firm’s interim results in which it paid a R9.9bn dividend.
Vale, the Brazilian iron producer, said earlier on Monday that a COVID-19 related order suspending production from its Itabira operation, where it runs three mines, would stay in place keeping about 10% of total production offline. The firm’s overall potential output losses associated with the pandemic in 2020 were kept at up to 15 million tons.
As a result, Chinese iron ore futures surged to their largest intraday percentage increase since July last year. “This is the birth of yet another supply issue in Brazil” and prices will remain elevated in the short term,” CITIC Futures Company analyst, Zeng Ning, told Bloomberg News.
Vale’s shutdown comes as COVID-19 explodes in Latin America, with the region’s highly urbanized population of 600 million becoming the new global centre in a continent that’s a major shipper of copper and agricultural products, as well as iron, said the newswire. Brazil’s case count is now second only to the US.
The tick up in iron ore pricing has surprised analysts.
Bank of America Merrill Lynch said that following a conference call with Mysteel, a Chinese global pricing and market advisory service, it believed iron ore prices would stay at between $80 to $90/t for 2020 and would not be above $100/t.
“Chinese steel demand for rebar will remain strong supported by infrastructure stimulus investment,” the bank said. “Low steel margins are expected to persist for the rest of 2020 and become the norm. With many Chinese steel mills struggling and under pressure to cut costs, medium-low grade (58-60% Fe) fines are expected to be in strong demand in 2020.”
Renaissance Capital said in a research note last month that Kumba along with African Rainbow Minerals and Exxaro Resources, which is invested in Kumba’s Sishen Iron Ore Company, would be vulnerable to price weakness in iron ore.
“We believe a severe COVID-19-induced global economic recession, combined with iron ore supply growth in the second half of the year, could put pressure on iron ore prices,” the authors of the Renaissance Capital report said. Earnings could also feel pressure from strengthening producer currencies – as seen in South Africa’s rand/dollar lately – as well as rising shipping rates and oil prices, the latter off record lows, they said.