Is the Vale/FMG deal a game changer for iron ore?

An excellent piece today from Matthew Stevens adds some more to the Vale/FMG intrigue:

This looms then as an alliance for all seasons. The stated ambition is to create a higher returning iron ore product for both contributors to the venture under discussion. Certainly, if Power’s market view is right and iron ore has been under-priced on sentiment and fear rather than existing fundamentals, then both Fortescue and Vale will be left leaner to surf the rising tides ahead.

But, if the pessimists are right and iron ore market is set to remain in structural over supply for the medium term at least, then this deal offers downside protection and supply-side flexibility for both its contributors.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.