AFR - Iron Ore - Brazil Brumadinho dam disaster: iron ore prices still affected as five-year anniversary dawns (afr.com)

Australia is once again counting its iron ore fortunes as a surprisingly strong price for the nation’s top export puts an even bigger gap between those at the top of the Financial Review Rich List and the rest.

But as BHP and Rio Tinto prepare to publish fresh iron ore export data this week, and prices hover near a very healthy $US130 a tonne, spare a thought for Brazil. This month marks five years since the catastrophic collapse of an iron ore waste dam at the Brumadinho mine killed an estimated 270 people.

The tragedy forced the world’s biggest iron ore exporter of the time, Brazil’s Vale, to suspend about 5 per cent of the world’s iron ore supply.

We’ve said it before but it’s worth saying again; Brumadinho’s partial role in driving iron ore prices higher over the past five years is the most unfortunate fortune Australia will ever make.

The deadly collapse of the iron ore tailings dam was one of Brazil’s worst environmental catastrophes. AP

What’s clear at the five-year anniversary of the Brumadinho disaster is that Brazilian iron ore supply has not bounced back, and is recovering slower than most people expected. A temporary free kick for Australian miners has turned into a semi-permanent tailwind.

The South American nation exported 397 million tonnes of iron ore in 2018; the final year before the Brumadinho disaster.

Four months after the disaster, Vale was vowing that all the shuttered supply would be back in operation sometime between May 2021 and May 2022.

Australia’s Department of Industry took Vale on its word, predicting Brazilian iron ore exports would exceed 400 million tonnes in 2020.

Instead, Brazil shipped just 341 million tonnes in 2020. Brazilian iron ore exports remain well below the levels seen before the Brumadinho disaster.

UBS believes Brazil exported 359 million tonnes in 2023, and the investment bank’s analysts reckons it will be late 2026 before the country manages to export 400 million tonnes in a year.

In the five years since Brumadinho, Australian iron ore exports rose from 835 million tonnes to 932 million tonnes.

That’s more Australian tonnes being sold into a market that is paying higher prices, and the biggest beneficiaries were those near the top of the Rich List: Gina Rinehart, Nicola and Andrew Forrest and Chris Ellison.

Australia is not finished taking market share. This year, a new iron ore export hub will emerge at Onslow – often dubbed Ashburton – with the goal of unlocking iron ore assets that looked to be hopelessly unviable before Brumadinho.

When Ellison started talking up Onslow in 2021 as a way to develop the West Pilbara iron ore district, it seemed like a boom time folly.

But Onslow and the once stranded iron ore mines of the West Pilbara are fast becoming a reality; the port is now populated by large sheds and a giant reclaimer was delivered before Christmas.

Onslow is scheduled to open for exports within about six months, meaning it should beat Guinea’s larger and more famous Simandou iron ore project into the market. Simandou should produce its first iron ore within two years and be producing 120 million tonnes a year by about 2029.

Logic says the substantial volumes of new supply from Simandou and Onslow will permanently drag iron ore prices down into double figures.

Chinese steel production is widely believed to be peaking about now, meaning the extra iron ore supply from Guinea and Onslow will coincide with sliding demand in China.

Those supply and demand forces make it hard to argue with people who reckon the iron ore industry is currently enjoying its final boom.

But then again, very similar arguments were made a decade ago by well-regarded economists like Ross Garnaut and Saul Eslake. This reporter incorrectly declared a peak in iron ore’s contribution to the national purse half a decade ago, while the iron ore bears got another chance to spread gloom less than 18 months ago when iron ore prices slumped.

Predictions for iron ore’s demise will probably be correct one day, but based on the evidence of the past decade, don’t be surprised if the sector remains the biggest earner for BHP and Rio for many years to come.

The most important lessons out of Brumadinho relate to dam safety and the preservation of human life.

But the lesson of Brumadinho for investors is about the power of incumbency in capital intensive industries where barriers to entry are high.

In the cyclical world of commodities, there are usually just a few players with the built mines, factories, railways, refineries, smelters or ports needed to capitalise on sudden market changes.

Alumina Limited demonstrated that in 2018 when it became one of the top dividend payers on the ASX thanks to a sudden shortage of its eponymous commodity caused by a burst pipeline in Brazil.

Since the Brumadinho disaster, it has been easier for BHP, Fortescue and Rio to add incremental iron ore supply to their existing railways and ports than it has been for the Simandou consortia to get a whole project off the ground.

The value of incumbency in capital intensive industries is worth keeping in mind as Australia’s nickel, cobalt and lithium miners go through tough times in 2024. BHP’s nickel division will probably publish some ugly numbers at February’s half year financial results, thanks mostly to a nickel supply surge from Indonesia that has weighed down prices for the metal.

But Indonesian politicians have a habit of moving commodity markets with sudden, surprising policy changes.

Nickel and bauxite markets soared in 2014 when Indonesia banned exports of raw ores. Similar shockwaves have accompanied Indonesian dictums on foreign ownership of mines.

Indonesia will hold presidential elections in February, and once they are out of the way, some believe there will be a crackdown on the environmental damage being caused by the nation’s recent nickel boom.

It might be wishful thinking from Australian miners, but certainly, there are murmurings about such a crackdown at provincial level in Indonesia.

If that were to happen, BHP’s rust belt nickel refineries and smelte

A couple of things to remember on iron ore and copper, with the collapse of all those Chinese building companies, whoops, I mean restructure!!!! the demand is probably not going to be what it was.

The other thing is the PIF in Saudi, having bludgeoned the PGA Tour they are investing into non oil and word is they want to become the biggest steel producer in the World, passing China. Seems like a tough call, but limitless finance, cheap tax rates and 5c/kWh power and a will to win, I wouldn't bet against it. This comment came directly to a friend of mine at a celebration dinner for his project from a PIF sheik as they had drinks with no alcohol. Go figure!

Thought it would be a good exercise to do some chart comparisons and find out how resilient Iron Ore is compared to Dr Copper.

With all the talk about China Stimulus I would have thought Copper would follow this news along with Iron Ore

Unfortunately that has not happened.

After dipping below $100 it seems Iron Ore is dismissing the recession bears and is riding the news on stimulus news in China

I would think Copper would follow but that hasn't happened. Starting to wonder when sentiment towards Dr Copper will start to turn.

Iron in Red, Copper in Green.

Source: Trading Economics

In the end, the question is who is right? Iron Ore or Dr Copper.

As comparison, Zinc (Green) is worse