• Iron ore prices fell heavily on Wednesday despite a raft of better-than-expected Chinese economic data.
• News that Vale’s Brucutu iron ore facility will resume operations was cited as the catalyst behind the weakness in mid and higher grades.
• In contrast, the price for 58% fines soared, narrowing its price discount to the benchmark to the lowest level in three years.
• Chinese iron ore and steel futures fell heavily in overnight trade on Wednesday, pointing to the likelihood early weakness in physical markets on Thursday.

Despite the release of stronger-than-expected Chinese economic data, mid and higher grade iron ore prices fell heavily again on Wednesday, undermined by reduced concern about the outlook for Brazilian supply.

According to Metal Bulletin, the spot price for benchmark 62% fines slumped 1.6% to $93.23 a tonne, extending its decline over the past three sessions to 3.4%.

Higher grade ore was also hit hard with the price for 65% fines sliding 1.5% to $107 a tonne.

The weakness across mid and higher grades coincided with news that iron ore production at Vale’s Brucutu facility in Brazil will resume shortly having been shuttered since early February, easing concerns over the supply outlook for higher grade ores.

“A Brazilian judge has overturned an injunction last month that prevented Vale’s 30 million tonne per annum Brucutu mine from restarting. The mine was originally halted in February, before being provided authorisation to restart last month, but that didn’t come to pass because of an injunction,” said Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank.

“The latest ruling should pave the way for the mine to restart soon, easing the deficit in iron ore markets.”

Dhar said the resumption of production at the Brucutu facility will likely support the benchmark iron ore price “in the $80s” in the medium term, although he acknowledged near-term supply concerns could keep the benchmark price above $90 a tonne “for a few weeks yet”.

In contrast to the falls in higher grades, prices for lower grade ore rebounded strongly having fallen for two sessions with 58% fines surging 2.7% to $79.34 a tonne, leaving it within touching distance of the multi-year high of $79.95 a tonne set on April 9.

Chinese iron ore port inventories fell heavily last week, according to data from Shanghai Steelhome, with the vast majority of these stockpiles comprising lower grades. That news, along with a recent decline in Chinese steel futures, may have contributed to the divergence in spot markets on Wednesday.

With 58% fines surging while 62% fines went backwards, the price discount for lower grades narrowed to levels not seen in three years.

The mixed price performance in spot came despite a swathe of stronger-than-expected Chinese economic data released during the session, including news that industrial output grew at the fastest annual pace in nearly five years during March.

Chinese crude steel output rose to 80.33 million tonnes during the month, up 10% on the levels of a year earlier.

Property investment — a major source of steel demand in China — also strengthened from the levels seen in the first two months of the year.

Pointing to the likelihood of further declines in physical markets on Thursday, Chinese steel and iron ore futures fell heavily in overnight trade on Wednesday.

The most actively traded rebar contract in Shanghai skidded to 3,744 yuan, down from 3,795 yuan on Wednesday afternoon. Hot-rolled coil futures also fell, finishing the session at 3,668 yuan.

That weakness extended into Dalian iron ore futures with the September 2019 contract slumping to 615.5 yuan, below Wednesday’s day session close of 621 yuan.

Trade in Chinese futures will resume at 11am AEST.

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