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  HOME | Brazil (Click here for more)

Brumadinho Disaster Takes a Toll on Brazil’s Economy

SAO PAULO – The Brumadinho tragedy, the mining accident whose 100-day anniversary Brazilians are marking this weekend, has taken a toll on South America’s largest economy because of its impact on the mining industry.

The collapse on Jan. 25 of a tailings dam at Vale’s Brumadinho mine killed 235 people, left 35 others missing and paralyzed iron ore production in Brazil, one of the world’s leading sources of the mineral, causing a spike in prices on international commodities markets.

The accident, according to a recent International Monetary Fund (IMF) report, could have a prolonged effect on some mines in Brazil and affect future projects.

Brazil’s industrial production dropped 2.2 percent in the first quarter, compared to the same period in 2018, dragged lower by the plunge in mining output following the Brumadinho accident.

In response, analysts have revised their 2019 gross domestic product (GDP) growth forecasts downward from an initial 2 percent to 1.61 percent, Alessandra Ribeiro, a specialist on macroeconomics and politics at consulting firm Tendencias, told EFE.

“The mining industry accounts for more or less 20 percent of the industrial GDP and that has an effect on the economy that has forced us to revise the forecasts,” Ribeiro said.

Vale, the world’s largest iron producer and exporter, experienced a plunge in production of 92 million tons of the mineral after judicial officials ordered the closing of several mines due to safety concerns.

The supply shock caused a spike in iron ore prices of around 30 percent.

The surged in iron ore prices helped Vale make up for the drop in volume.

“That increase benefits Vale and all the iron ore companies in the world, especially Australia’s BHP and Rio Tinto,” Livio Ribeiro, a senior applied economics researcher at the Fundacion Getulio Vargas (FGV), told EFE.

The iron and steel industry, however, has felt the effects of the price surge due to its dependence on Vale as a supplier of the key raw material used to make its products, Brazilian Steel Institute president Marco Polo de Mello Lopes told EFE.

The industry leader said that since the accident at Brumadinho, the price per ton of iron ore has risen by some $20 or $30, increasing production costs.

De Mello Lopes said the industry was also dealing with the “risk of shortages” due to the drop in output, a problem that could hit the entire production chain, affecting machinery, equipment and electronics manufacturing.

Vale got permission recently from a judge to resume operations at the Burucutu mine, which has a capacity of 30 million metric tons and could help offset some of the lost production.

De Mello Lopes said, however, that the risk of an insufficient supply of iron ore would continue to be high unless the Vargem Grande Complex, also located in Minas Gerais state, went back online soon.

“If Vargem Complex doesn’t come back, the threat of shortages is very big,” the steel industry executive said.

 

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