Iron ore majors warn customers of more supply cuts

The world's three largest iron ore producers have told customers to brace for further supply cuts in May-July, supporting spot market premiums for affected ores.

Australian mining firm BHP has told its customers it will conduct equipment maintenance on 1-15 July that will delay shipments of Newman fines (NHGF), according to Chinese and international traders and Chinese mill buyers. BHP has not told customers what equipment is affected.

Production of NHGF will be halted during the 1-15 July maintenance period. Operations will resume from 16-31 July but shipments will be limited to joint-venture partners, market participants said.

A south China mill confirmed shipments under its long-term contract will be halted from 1-31 July, after BHP informed it of the outage.

"BHP informed us via email that it will conduct a 15-day maintenance in July, which might cause tight supply. They advised us to put off third-quarter Newman fines shipments to August-September," an official at a north China-based mill said.

BHP declined to comment.

Tight seaborne supply has widened premiums for higher-grade ores including 62.4pc Fe NHGF and Brazilian mining firm Vale's 63pc Fe BRBF. The price differential between NHGF and PB fines (PBF) has more than doubled to 22-23 yuan/wet metric tonne (wmt) last week from less than Yn10/wmt in early March.

Seaborne floating premiums for NHGF have risen this month. An 80,000t cargo of NHGF traded at a $2.45/dry metric tonne (dmt) premium to June index on screen on 9 May. A private deal for NHGF was done at a $2.60/dmt premium to May index on 8 May. These premiums are around 50¢/dmt higher than traded levels for PBF. This contrasts with early March, when NHGF floating premiums were around 20¢/dmt lower than PBF.

The firm's Newman joint venture produces NHGF and Newman lump (NBL) from ores sourced from the Mt Whaleback, Western Ridge and Wheelarra mines and other ore bodies. Wheelarra output is also used to blend Jimblebar fines (JMBF).

The maintenance could be related to shifts in blending. BHP has told customers that JMBF's typical Fe content will fall from the current level of 61pc Fe to 60.3pc Fe, 4.60pc silica, 3.10pc alumina, 0.12pc phosphorus and 7.2pc moisture, effective for July vessel loadings. This could not be confirmed.

Fellow Australian mining firm Rio Tinto has told customers that it expects to finish repairs to cyclone damage by late June or early July. Its Pilbara operations have been disrupted this year by a fire at a Robe River screen facility in January and a cyclone in March. The firm cut as much as 7mn t from its guidance for the fiscal year that runs to 30 June.

"We do acknowledge these disruptions have had some significant impact on our customers and their operations," Rio Tinto's vice-president of sales and marketing, Simon Farry, said at the SGX Iron Ore Forum last week.

Vale expects to ship 50mn-75mnt less ore in 2019 in the wake of a January accident at the Feijao dam in Minas Gerais province. Seaborne markets have lost 60mn t/yr of the firm's southern system supplies of pellet and 62pc Fe high-silica fines. It uses the latter to blend with northern system 65pc Fe IOCJ fines for BRBF fines blended in Malaysia and China. Inventories of BRBF fines are estimated to have fallen sharply.

IOCJ supply growth was expected to offset some of the southern system cuts, but three weeks of heavy rains in northern Brazil until early April curbed mining operations. There is a shipping time of around 45 days to China, so the effect of that lower output is being felt by Chinese buyers in May and could lead to a further widening of the 65pc to 62pc seaborne index differential.

Argus value-in-market (ViM) quality adjustments for BRBF have risen to a 7.4pc premium to the Argus ICX 62pc index from less than 4pc in early April. BRBF traded at $100.50/dmt 62pc basis on 10 May, the first 62pc fines trade above the $100/dmt level since 2014.

The overall price increases across iron ore grades have limited the upside for the highest Fe ores. The Argus 65pc index was at $110.95/dmt yesterday, a 16.5pc premium to the ICX 62pc index. This was only a modest gain from 15pc premiums in mid-April and mid-March, and well below premiums of more than 40pc reached in 2018.