Brazil iron ore exports still in recovery

Brazil's iron ore exports totalled 162.39mn t in the first half of 2019, down by 9.8pc year on year, trade data shows, as volumes have yet to fully recover from January's Feijao dam incident in Minas Gerais.

Shipments to China accounted for the largest share of exports but volumes in the first half of this year have fallen to 87.09mn t, down by 16.3pc compared with the same period in 2018. Exports to other key steel producing countries in Asia have also dipped in the same period to reflect the supply tightness, with shipments to Japan at 7.28mn t, down by 20.7pc and South Korea at 4.17mn t, down by 6.9pc.

Exports from Brazil continued to increase in February following the 25 January fatal incident at Brazilian iron ore producer Vale's Feijiao dam. The accident led to the closure of some of Vale's iron ore mines in the province, including its second-largest mine Brucutu. Iron ore shipments from Brazil only started to decline in March this year and continued to do so into June despite periods of improvement.

But the rate of decline in exports appear to have slowed after a 25.9pc decline in March to 2.22mn t and 26.9pc fall in April. Brazil's total iron ore exports in May fell by 13.8pc to 29.82mn t while June exports fell by 16.7pc on the year to 29.4mn.

Exports to Europe from Brazil have fallen in line with the overall trend but the UK and Poland stand out for registering the largest decline for the region in the first half. Shipments to the UK in the January to June period totalled 981,236t, down by 53.6pc on the year, likely a reflection of a sharp slow down in any spot requirement this year. Volumes shipped to Poland totalled 202,329t in the same period, down by 76.8pc, also a sign of the country's troubled steel industry. The Netherlands remains the largest recipient of Brazilian iron ore in Europe, with 6.86mn t shipped in the first half of this year, down by 28.7pc on the year. This is followed by Turkey with 2.96mn t, down by 28.7pc on the year and France with 2.83mn t, down by 15.9pc on the year.

Vale's supply problems and tighter margins in Europe have opened the doors for alternative suppliers. Indian state-controlled iron ore pellet producer KIOCL has signed initial agreements with international trading companies Glencore and Steel Mont for sales into the European market, including the UK.

India's pellet sales to the UK in the 2018-19 fiscal year ended 31 March, increased by over 500pc from a year earlier to 371,650t in 2018-19, with exports made for the first time to the Netherlands with 54,430t, Poland 66,920t and Turkey 53,990t.

Signs of recovery remain

Vale continues to push forward with bringing its operations back to normal and in June restarted wet processing operations at Brucutu after a decision by the superior court of justice (STJ) overruled an earlier injunction by the Minas Gerais state court.

The initial injunction at the state level prohibited the use of the Laranjeiras North dam, which would allow wet processing to resume and for Brucutu's production levels to increase to its full capacity of 30mn t/yr.

The restart helped to boost the Atlantic Capesize market which suffered from February to May following the mine's shutdown. The weak demand drove the Argus-assessed Brazil-China Capesize rate down to a 20-month low of $11.70/t on 28 March. But rates have since risen to a high of $22/t on 5 July, but were down to $21.70/t yesterday.

Iron ore exports out of Brazil totalled 6.2mn t in the first week of July, down from 9.3mn t in the first week of June. Weekly exports averaged around 7mn t weekly before the dam accident.