News that Vale is about to re-open its Brucutu mine has buoyed the market for forward freight agreements (FFAs), but has piled pressure on iron ore prices.
The Brazilian miner has announced operations would resume at Brucutu sometime before Friday, subsequent to a court decision.
Production volumes from Vale's Northern System will, however, continue to be impacted because heavy rains in March and April have disrupted shipments from Ponta da Madeira port and rail transportation, Vale said.
As a result, the miner said it expects its 2019 iron ore and pellets sales volume to be in the mid-range of 307 to 332 million tonnes.
The Brucutu mine is the largest in Minas Gerais state and produces 30 million tonnes of iron ore per year when fully operational. It was closed in early February.
Shipping analysts welcome news
"This is very good news for the capesize market in our view, which is already trading heavily up across the FFA curve this morning, with third quarter contracts reported at $13,500 per day, above our 2019 forecast of $12,000 per day," analysts from Clarksons Platou Securities said in a research note on Wednesday.
In the physical market, Clarksons said it assessed capesize earnings on Wednesday at $6,000 daily, which is $100 higher than on Tuesday.
The firm expects them to see "a significant boost" once exports from Brucutu come back online.
Average capesize earnings in 2019 to date stand at $8,100 per day, a significant reduction compared to the $12,200 level seen at this point in 2018, according to Clarksons' assessments.
Iron ore price plunge
The iron ore futures market fell sharply when markets opened in China on Wednesday, not long after Vale made its announcement.
Contracts for September delivery on the Dalian Commodity Exchange fell by around 4.7% shortly after the market opened.
The contract closed at 621 yuan ($92.86), 3.8% below Tuesday's level.
Physical iron prices have also faced a correction as miners increase their exports to meet demand.
Platts assessed the 62% Fe Iron Ore Index at $94.30/dry tonne CFR North China on Tuesday, down $1.50/dmt from Monday, according to a research note from Freight Investor Services (FIS) on Wednesday.
The world's top five iron ore producers have increased their exports by 11.3% week-on-week to 18.86 million tonnes between 7 to 13 April, FIS said in its note.
"Some steel mills had kept seaborne purchase to small portions as they found current prices too high and expensive," FIS said in its analysis.
Vale's rival Australian miners BHP Group and Rio Tinto have also cut their iron ore production outlooks for 2019, following a tropical cyclone that damaged export facilities when it hit Western Australia in March.
