Brazil’s worsening COVID-19 crisis and the reduced shipment of iron ore from the South American country have led to a surge in global iron ore prices on the back of resilient demand from China.

According to ASX market index, the spot price for benchmark 62 per cent iron ore delivered to China reached $US100 ($150) per tonne on May 26, up from around $US90 per tonne last month.

The benchmark price last Wednesday peaked at $US107 ($161) per tonne, the highest it had been since October last year.

The upward trend for iron ore prices are expected to continue, with Chinese steel production remaining resilient and Brazil’s COVID-19 restrictions further hampering iron ore production.

Brazil, unlike many other countries, has not uniformly enforced a lockdown, resulting in a rapid and widespread increase to COVID-19 infection rates. Flights from Brazil were banned by the United States earlier this week.

There has been a sudden spike in COVID-19 cases in the Brazilian state of Para, where around 29 per cent of the country’s iron ore is produced.

Vale has already been producing below capacity after the fatal Brumadinho tailings dam disaster in early 2019 provoked the closure of several mines.

The latest mine production data from Brazil indicates a 12 per cent decline in iron ore shipments compared with last year, whereas two of Australia’s major producers have lifted production – Rio Tinto by 7 per cent and Fortescue Metals Group by 24 per cent – according to a report by Forbes.

“McKinsey & Co, a management consultancy, estimates that the production disruption in countries such as Brazil and South Africa could see a 5 per cent fall in global iron ore production creating an almost perfect storm for Australian miners,” Forbes stated.

Fortescue achieved a record iron ore shipment to China during the March quarter, shipping 42.3 million tonnes, a 10 per cent increase on the 38.3 million tonnes shipped in the prior corresponding period.

BHP also indicated plans to grow its iron ore export capacity in Port Hedland in Western Australia by 14 per cent — from 290 million tonnes per year to potentially 330 million tonnes per year.

BHP said the move was about “providing future options” and “should not in any way be construed as a forecast or target”.

Iron ore was a major driver of Australia’s exports in March, recording a 36 per cent monthly increase and a 47 per cent increase on last year.

“Iron ore is expected to be the first commodity to exceed $100 billion in export earnings in a single year,” Australia’s Minister for Resources, Water and Northern Australia Keith Pitt said in March.

Macquarie Bank also stated in its latest iron ore research note that it expected “material upside to earnings for Australian iron ore miners from next year and beyond”.

Credit Suisse anticipates the iron ore price to rise above $US110 per tonne should Brazil fail to restore its exports.