Vale port shut down likely to affect iron ore market, prices jump

The Port of Tubarão in Espírito Santo. (Image courtesy of Vale SA)

Analysts expect some important disruptions to the iron ore market after Brazil’s Vale (NYSE:VALE), the world’s largest producer, was ordered by a local court Thursday to temporarily shut down its Port of Tubarão over alleged environmental breaches.

According to Noticias de Mineracao (in Portuguese), Citigroup is already warning that if the port suspension lasts several weeks, there will be a strong reaction in the international market.

Prices of the raw material are reacting positively to the news. Iron ore with 62% content delivered to the Chinese port of Qingdao climbed 2.2% to $42.20 a ton Friday, according to Metal Bulletin index. The SGX AsiaClear iron ore contract in Singapore also rallied — as much as 6.9% to $39.90 a ton—, while futures on the Dalian Commodity Exchange rose as much as 3.2%.

Vale port shut down likely to affect iron ore market, prices jump

Chart courtesy of Quandl.(Click to enlarge).

The ruling ordering Vale to paralyze imports and exports at one of the world's most important iron ore terminals comes on the heels of increasing pressure over the company’s environmental record, which has been severely tainted after a dam burst at a Brazilian mine run by its Samarco joint venture in October.

The Tubarão port, one of vale’s most important ones, also handles coal imports and steel exports for the Brazilian unit of ArcelorMittal SA , the world's largest steelmaker. ArcelorMittal said in a statement Thursday that Vale was responsible for port operations and that the closure would not have an immediate impact on its operations.

Vale, in turn, said it will take all judicial measures necessary to guarantee the re-opening of the port.