Shares in our iron ore miners took a big hit yesterday as the price of iron ore crashed on a Reuters report that the Brazilian court had given the green light to Vale to restart its largest iron ore mine in Minas Gerais state.
The Fortescue Metals Group Limited (ASX: FMG) share price crashed 6.7% to $6.36 on Wednesday while the Rio Tinto Limited (ASX: RIO) share price tumbled 2.8% to $92.09 and BHP Group Ltd (ASX: BHP) share price shed 1% to $37.20.
BHP and Rio Tinto shares also lost ground in London in overnight trade, which doesn't bode well for the start of trade on the ASX today.
Iron ore under pressure
News that Vale had won court approval for its massive Brucutu mine sent the most active iron ore contract (i1905) traded on the Dalian Commodity Exchange crashing by more than 5% yesterday.
But the resumption of the Brucutu mine isn't a necessarily imminent and that could ease the selling pressure on our iron ore producers.
Reuters reports that the mine has an installed capacity of 30 million tonnes of ore, which represents around 8% of Vale's forecast annual production from Brazil, but the mine still requires local government approval to resume its operations.
Brucutu is one of several mines that Vale was forced to shutter after the tailings dam disaster at the miner's Brumadinho mine in January this year.
The tragedy that killed at least 150 people triggered a surge in global iron ore prices as the market anticipated a shortfall of the commodity.
Can we count on more iron ore supply?
It's understandable why the restart of Brucutu would put downward pressure on the price of the steel making ingredient.
Fortescue is the most sensitive to changes in the price of iron ore among the majors given its higher cost base and lower quality ore.
Rio Tinto is next as iron ore contributes the most to its bottom line, while BHP is better diversified across other commodities, including oil.
However, it might be too early for iron ore bears to celebrate. It's unclear if the local government will be quick to endorse the resumption of operations at Brucutu given the red-hot anger in the local community towards Vale following the tragic disaster only two months ago.
The iron ore market may remain out of balance for a little while yet.
