The mining company Vale ( VALE , quote ) has declared "force majeure" on iron ore shipments as of Wednesday due to the impact of heavy rains. There are estimated losses of 2 million metric tons in shipments of iron ore, the company said in a statement.
"Up to now, we estimate a loss of 2 million metric tons in shipments of iron ore. We are contacting customers under the terms of their contract," mentions VALE.
The heavy rains in the states of Minas Gerais, Rio de Janeiro and Espírito Santo since mid-December have created difficulties for the operations of the valley systems in South and Southeast.
"Force majeure" or "greater force" is a clause included in contracts that removes liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations.
The mines in Minas account for nearly 50% of VALE's total production of ore and this is apparently now such a catastrophic event.
In the third quarter of 2011, production in the state reached 31.29 million tons.
The summer rains that hit the Southeast of Brazil have left at least 34 dead and thousands forced from their homes . The federal government announced Wednesday the release of BRL 75 million ($42 million) in emergency aid to the region.
Rio Tinto ( RIO , quote ) and BHP Billiton ( BHP , quote ) were forced to declare force majeure early last year when catastrophic flooding in Australia knocked approximately 40 million tons of coal and massive amounts of iron and aluminum production offline.
That, in turn, helped drive the iron and coal booms of the spring as steel companies fought for raw materials.
While Vale's disruption may not last as long, it takes pressure off the iron market. This is great for BHP and RIO.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
