Vale’s iron ore output just hit another record

The Rio de Janeiro-based company said iron ore production jumped 11% to 86.2 million tonnes in the January-March period, compared to the same quarter a year earlier.

The figure however, was 6.7% lower than total iron ore output of 92.386 million tonnes in the prior three months, and the company said it might restrain supply even further in coming months to support prices if necessary.

For now, however, the mining giant reiterated its output guidance for the year of between 360 million and 380 million tonnes of seaborne.

The commodity has been steadily falling in the last few days, to a near six-month low this week, on the back of fresh signs of a supply glut and ramped-up production in China.

While prices have recovered slightly in the past two days — ore with 62% content in Qingdao added 76 cents overnight to $65.36 a tonne on Thursday according to the Metal Bulletin — analysts expect supply to surpass demand for the foreseeable future.

For some, such as Stan Wholley, president for the Americas at CSA Global, the current downtrend is nothing but an expected correction. “I think people got exuberant about iron ore on the way up and we are seeing a bit of reality check right now,” he told MINING.com.

He noted that at least one of the main factors dragging prices down at the moment — high level of stockpiles in China and the anticipated increases in supply coming from Vale and Roy Hill — may soon reverse its course.

“There is not a great deal that can be done about the new supply — it will happen. However, there are indications that stockpiles in China are decreasing (albeit from record highs) which may slow or even halt the decline,” he said.

“I also think the handover of power that will be occurring in China later in the year will have a stabilizing influence, as the incoming government will not want to see wild swings in the economy and will want to see growth maintained as they assume power,” said the CSA Global consultant, who has more than 25 years of experience in exploration and mining geology, particularly in the iron ore sector.

Longer term, Wholley thinks iron ore fundamentals are sound. Steel production in China increased in 2016 and it’s predicted to do so again this year to support infrastructure projects as Beijing tries to stimulate the economy.

At Macquarie, analysts seem to be on board of a very different boat. In a note Thursday, the bank said it expected to see iron ore find support at around $50 per tonne, suggesting that falls of a further 20% are in store.