Smaller Brazilian iron ore producers battered by shipping costs

Smaller Brazilian iron ore producers are struggling with soaring shipping costs to top consumer China, squeezing margins and prompting production cuts.

Mineracao Usiminas SA suspended operations at the Samambaia plant in Minas Gerais state on Sept 2. The measure is one of a series of steps “to address challenging external conditions, including falling iron ore prices and a surge in ocean freight costs,” the company said in a statement.

Itaminas Comercio de Minerios SA said it will halt a wet-processing plant in October and put a third of its workers on leave to preserve cash. The miner, which exports 90% of its output, is ahead of its production plan and said the move won’t affect its commercial commitments.

Mineracao Usiminas SA suspended operations at the Samambaia plant in Minas Gerais state on Sept 2. The measure is one of a series of steps “to address challenging external conditions, including falling iron ore prices and a surge in ocean freight costs,” the company said in a statement.

Itaminas Comercio de Minerios SA said it will halt a wet-processing plant in October and put a third of its workers on leave to preserve cash. The miner, which exports 90% of its output, is ahead of its production plan and said the move won’t affect its commercial commitments.

Freight rates have surged this year as the Middle East war disrupts trade flows and raises fuel prices, while bad weather in the Pacific has tightened vessel availability. Stronger demand from iron ore shippers has added further pressure to costs.

“With iron ore prices also weakening, smaller exporters with limited contractual protection remain vulnerable to pressure on margins and working capital,” said Maria Bertzeletou, a senior market analyst at Signal Group.

The Baltic Exchange’s C3 Capesize route, from Brazil’s Tubarao port to Qingdao in China, was quoted at US$42.12 (RM170.62) a tonne on Sept 14, hovering around the highest levels since 2021. Benchmark iron ore futures, meanwhile, have mostly traded in a relatively tight range below US$100 a tonne since July, from a peak in May of nearly US$112 a tonne.

On a free-on-board basis, the “value received by Brazilian producers has fallen by more than US$18 a tonne, even though iron ore prices have barely moved,” said Artur Bontempo, a partner at Prime Trading. The curbs at Usiminas and Itaminas suggest an even bigger impact on smaller miners in the country’s Iron Quadrangle production hub, he said.

Surging freight costs are particularly painful for independent miners such as Itaminas, which lack the logistical support of larger rivals, chief executive officer Thiago Toscano said in an interview last week. Shipping costs on the Brazil-China route have more than doubled from a year earlier, consuming “a very significant portion” of the value from exports and making some sales less attractive, he said.

Usiminas’ decision to halt about 30% to 35% of output at its mining business is an early sign that squeezed margins are starting to curb Brazilian iron ore supply, said Daniel Sasson, an analyst at Itaú BBA.

He estimated margins for Brazilian miners exposed to spot freight rates are near five-year lows, which increases the chances that iron ore prices will recover rather than continue their decline. Brazil is the world’s second-largest producer of the steelmaking material, and the market is contending with the structural threat posed by waning demand from China’s steel industry.

Source: Bloomberg News

Sharing is caring!