Iron prices have spiked over the first half of 2021 on the back of a global COVID recovery and renewed infrastructure spending in China. Now questions are mounting over whether the world’s top producers will be able to supply enough iron to meet market demand, particularly if Beijing decides to keep the stimulus taps open in order to sustain its flagging economic recovery.

Background

The world’s top iron ore companies include Vale (Brazil), Rio Tinto (UK-Australia), BHP (Australia), Fortescue Metals Group (Australia), and Anglo American (UK). Many of these companies have been struggling to keep global markets well-supplied, with indications abound of even greater supply-side hurdles ahead, leading to a sustained period of above-average iron prices.

Vale recently released second quarter results showing 75.7 million tonnes in iron exports, slightly below the 78 million Bloomberg consensus estimate. On a more positive note, output numbers were up 11.3% quarter-on-quarter; however, pending maintenance work at its Tubarão complex threatens to dampen iron output over the next quarter. Vale is still reeling from the 2019 Brumadinho dam disaster, which killed 270 people and caused a subsequent shutdown of ten mining sites throughout Minas Gerais state. The company has since been ordered to pay over $7 billion in compensation to the victims. It will take a strong second half performance to reach the company’s target output of 315-335 million tonnes, which is roughly in-line with Vale’s pre-disaster output.