The fact that the Colombian government feels the need to militarize the border tells us all we need to know about the Covid-19 situation in Brazil. Fast becoming a global hotspot, neighbouring nations are become increasingly concerned by the country’s failure to tackle the pandemic with the same aggressive tactics that we are seeing internationally.
The task of balancing economics with safe distancing is tricky but is not a new story. However, rising numbers of cases are having a ripple effect into the commodity markets. Reports in the Western Australian suggest that the region’s key commodity is rising to its highest prices since January on fears that Brazil is seeing a rise in cases.
China is out of lockdown; stimulus is around the corner and industrial activity is picking up. Brazilian mining and ports have been unscathed until now and continue to operate. However, if the trend in infections continues this could change; safety will come first, if not driven by the government then the company that drives the Brazilian economy will act to protect their employees.
Vale’s reputation was left in tatters last year after a collapsed dam killed over 300 people; Norway’s sovereign wealth fund removed Vale due to environmental and human rights concerns. The company is global, it has international investors and a board that operates on a safety-first mode to protect its employees and the indigenous populations that surround its operations.
Brazil President Jair Bolsonaro may tell the world it is business as usual, but in a crisis, it is those that act first that are the real leaders and this burden will fall on the world’s largest miner.
Iron prices may be overextended, the global economy facing its largest threat in a century, but when we observe that iron ore is an anomaly in the global commodity markets it might just be more than in anticipation of Chinese stimulus.
The longer-term picture for iron ore might be at lower levels than seen now, but with Brazil fast becoming the next Covid-19 hotspot, would you sell?
Edward Hutton