Towering Supply Disruption Catapulted Iron Ore; Rio Crosses $100 mark. 

Towering Supply Disruption Catapulted Iron Ore; Rio Crosses $100 mark. 

Iron ore prices spiked, with Iron Ore Fines 62% Fe (CME) settling at $87.52 (as on 1st April 2019) and Dalian Commodity Exchange (DCE) Iron Ore 62% Fines settling at RMB 650.00 (as on 1st April), up by 2.85% as compared to its previous close.

The factor which supported the iron ore prices is the estimated production loss declared by the Australian Iron ore miners amid slight damage caused by Tropical Cyclone Veronica.

The world’s second largest iron ore producer, Rio Tinto declared an estimated production loss of 14 million tonnes per annum due to the slight damage caused by the cyclone at the Cape Lambert, a port facility in Pilbara Region where the Cyclone Veronica caused damages and high tides in the river Turner.

Rio has declared force majeure on some of its contracts due to the estimated production loss amid disruption in port facility. The company also reduced the estimated shipments for the year 2019 and kept the shipment estimation to be in the range of 339 million tonnes to 350 million tonnes.

In the absence of Rio Tinto, another significant Australian iron ore miner and competitor, BHP (ASX: BHP) was expected to take advantage until recently, when it made a public announcement on 2nd April 2019. As per the company’s notification, its Rail Operations and Ports have taken a hit from the cyclone, and BHP also declared a production loss in the range of 6 to 8 million tonnes per annum.

Apart from the significant Australian Iron ore miners, the world’s largest iron ore producer, Vale adjusted its production expectation down to 307-322 million metric tonnes for the year 2019.

The production cut from significant iron ore producers concerned the market participants over supply disruption in the raw material market; thus, in turn, supported the iron ore prices and the prices climbed to mark their respective close on different commodity exchanges.

The 35 ports across China also raised their quotes on the iron ore prices, as the production loss and suspension of docking and ship loading activities in Port Hedland amid high tides in river Turner, marked a decrease in shipments across the Chinese ports.

Rio Tinto (ASX: RIO) moved above the A$100 mark and made a high of A$100.130 (as on 2nd April). The benefits of high prices in the iron ore market due to production loss from other rival and competitors led the Rio shares to surge above the A$100 mark, and it also indemnified the production loss by the company and set the share prices ablaze.  However, the prices lost all the early gains at the end of the trading session and closed at A$98.430 (as on 2nd April), down by 1.11% as compared to its previous close.

Rio on Charts:

 Source: Thomson Reuters: Rio Tinto Daily Chart

On following the development on the daily chart, the shares prices of the company are trading above both 7-days exponential moving average, which is at A$96.873, and 20-days exponential moving average, which is at A$94.273. The 14 days RSI (Relative Strength Index) is at 67.794, which is above its mean value of 50.


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