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Vale to suspend operations at iron ore mines: Update

  • : Metals
  • 19/01/30

Adds analysts, market reaction and background

Brazilian mining company Vale will remove around 10pc of its annual iron ore output capacity as it decommissions 10 tailings dams at various mines in the next three years, after an accident at the Feijao mine left 65 people dead and 279 missing in Minas Gerais province.

The total loss of production from the suspension of operations is expected to be around 40mn t/yr, including 11mn t/yr of pellet output. The decommissioning of the dams will cost around $1.3bn.

Vale said it will increase production at other mines to make up for loss of output but did not give details. Vale is currently raising production at its 90mn t/yr S11D complex in the Carajas region. Vale estimated output of 390mn t of iron ore in 2018.

Vale will temporarily halt the production of the units where the dams are located, which are the Aboboras, Vargem Grande, Capitao do Mato and Tamandua operations in the Vargem Grande complex and the Jangada, Fabrica, Segredo, Joao Pereira and Alto Bandeira operations in the Paraopeba complex. The fatal dam burst on 25 January was at the Feijao mine that is part of the Paraopeba complex. Work will also be stopped at the Fabrica and Vargem Grande pelletising plants. The operation of the halted units will be resumed as the decommissioning works are completed.

Both the Paraopeba and Vargem Grande complexes are part of Vale's southern system mines, which produce high-silica medium-grade fines such as SSFG and SSFT fines. Vale has said over the past year it plans to reduce production of these fines as it ramps up output of high-grade ore in the Carajas complex. The southern system fines are blended with the 65pc basis Vale IOCJ fines to produce the BRBF fines, a best-selling medium-grade ore in the Chinese market.

Vale's mine closures lifted prices of portside iron ore and futures in China. The most active Dalian iron ore futures contract was higher by around 6pc AT 12.14pm Singapore time (04:14 GMT). Offers for PB fines were at 605-630/wet metric tonne (wmt), or a $80-83.35/dry metric tonne seaborne equivalent, in the morning, up by Yn40/wmt from yesterday's offer prices. Deals for PB fines were done at Yn605/wmt, Yn615/wmt and Yn620/wmt at Caofeidian port.

Brazilian public prosecutors ordered the arrest of five people involved in licensing Vale's Corrego do Feijao tailings dam that ruptured last week. Authorities are investigating whether the technical documents used to certify the dam's safety were fraudulent. Vale is co-operating with investigations, the company said. An additional $215mn in Vale assets was frozen by the department of labour, in addition to $2.65bn that has already been frozen earlier by the Minas Gerais public prosecutor.

A securities class action lawsuit has been brought against Vale in a New York district court alleging the company provided false and misleading information about the risks and potential damage of a potential breach in Feijao dam. "Vale intends to defend vigorously against the claims," the company said.

Short-term price increases

Vale could quickly bring idle and new capacity on stream to minimise production losses at the southern system mines, said analyst reports by investment banks Goldman Sachs and Morgan Stanley.

Goldman Sachs forecasts a 10-15mn t/yr net loss of Vale's output while Morgan Stanley expects any production loss to be minimal. But both expect an upside to iron ore prices in the short term as a result of Vale's decision today. Goldman Sachs has revised its three- and six-month price forecasts for 62pc basis fines at $80/dmt and $70/dmt from an earlier forecast of $70/dmt and $60/dmt respectively. Iron ore prices may remain high for a few quarters as a result of Vale's decision, said Morgan Stanley.

Both investment banks said any price upside for pellet may be sharper as it will be difficult to replace the 11mn t/yr capacity to be shut down temporarily. The suspended capacity represents around 10pc of the seaborne pellet market, which could see pellet premium test September highs of a $90/dmt premium to the 62pc reference fines index, said Goldman Sachs. The price upside for pellet may persist longer than that for other ores, said Morgan Stanley.

Low alumina iron ore supplies will fall by a large extent in the Chinese market, which could support demand for such fines if steel mills' profitability and demand for quality ores improves in the spring months, said a Beijing-based trader.

Prices of low-alumina, 63pc basis BRBF fines had increased sharply from mid-2018 before easing back since November as steel mill appetite for premium ores cooled. Vale had blended 75mn t BRBF fines in China in 2017 and planned to blend around 100mn t in 2018, although there is no update on actual volumes yet. A cargo of BRBF fines was offered at Yn680/wmt at Rizhao port, higher by Yn60/wmt from yesterday's traded price, at the same level as price of 65pc basis IOCJ fines last week.

BRBF fines supplies will be affected with lower availability of southern system fines. The price upside will be more for low-alumina ores such as Trafigura fines, CSN fines and Mauritanian ores and less for PB fines and Newman fines, said a south China-based trader.

The proportion of BRBF fines in the furnace burden is typically less than 15pc in Hebei and Shandong provinces, although it higher than 20pc in Shanxi and south China, said the manager of a Hebei-based mill, adding mills could switch to using more Australian ores if BRBF fines prices rise too much. A large international trading firm reported substantial BRBF fines stocks in portside markets, which it now expects to sell at a higher price in the short term.

Enquiries for Vale's low-alumina SFLA fines also increased with a February delivery cargo offered at $9/dmt premium to the March 62pc index.

Prices of Indian pellet are expected to be firm in the short term though ample portside stocks may curb upside, said the manager of a Hong Kong-based international trading firm. Indian 64pc Fe pellet is the most widely traded in China's spot markets. Prices have fallen to around $109-110/dmt cfr China from highs of $150-160/dmt in September and October. Pellet demand remains robust in India, which will definitely push up export prices if Chinese demand increases in the short term.

"A lot of the price movement in iron ore we have seen this morning is speculative. If steel prices do not follow the increase in iron ore prices, mill profits will be squeezed further which will pressure iron ore prices," said a Shanghai-based trader.

Additional supplies from Anglo American's Minas Rio mine, which was reopened this month, as well as from Vale's Carajas mines will largely plug any supply deficit from the affected mines, so seaborne supply and demand may remain in balance this year, said a Shanghai-based trader.

Accident summary:

  • Dam I of the Corrego do Feijao Mine in Brumadinho, Minas Gerais in southeast Brazil was breached on 25 January. The death toll has risen to 65 with hundreds missing.
  • The dam had been inactive for three years and was being planned for decommissioning.
  • The height of the dam was 86m and had a crest length of 720m. It held 11.7mn m³ volume of upstream mining waste, mostly silica and water, with no pond associated with it.
  • The dam was built in 1976 by Ferteco Mineracao and acquired by Vale in 2001.
  • The dam had stability condition statements issued by geotechnical firm TUV SUD do Brasil in June and September 2018 for its periodic safety reviews. Biweekly inspections were reported to regulators with the last inspection in regulator's records for 21 December, with two inspections in Vale's system for 8 January and 22 January.
  • The Minas Gerais public prosecutor's office froze $2.65bn of Vale's assets after the accident.
  • This dam accident follows the 2015 Samarco mine spill that was the country's worst environmental disaster and killed 19. Courts have not yet set final penalties for the Vale and BHP joint venture.
  • Vale's Paraopeba mining complex has 13 dams and structures with three at the Feijao mine.
  • The Feijao mine produced 7.8mn t in 2017 and 8.5mn t in 2018 out of a total 26.3mn t and 27.3mn t by the Paraopebas complex.

Other market views:

  • Vale has around 30mn t of iron ore inventories in China and Malaysia, which should alleviate short-term supply stress, Goldman Sachs said.
  • Anglo American's Minas Rio mine that started operations last month "could be affected" and Samarco "is unlikely to restart in the foreseeable future", Goldman Sachs said.
  • The Minas Rio restart might add 19mn t/yr to seaborne markets to help balance markets, a Shanghai trader said.

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24/09/20

Northvolt's future unclear as Sweden rejects stake

Northvolt's future unclear as Sweden rejects stake

London, 20 September (Argus) — The future of Swedish battery and cathode active material (CAM) producer Northvolt is unclear after the country's Prime Minister Ulf Kristersson confirmed this week that the government will not invest in the company. Northvolt has had to cut back its expansion plans because of challenging macroeconomic and market conditions. Northvolt's difficulties were thrown into the spotlight last week when chief executive and co-founder Peter Carlsson said the company will scale back its expansion plans for a second CAM factory in Borlange, Sweden – a facility that is intended to help ease regional dependence on imports from China which currently accounts for over 70pc of global CAM production, according to the IEA. The adjustment at Borlange is one of several setbacks at Northvolt, whose Skellefteå factory in the far north of Sweden delivered less than 1GWh of battery production last year – enough to power around 20,000 cars and far below the plant's nameplate capacity of 16GWh. Back in June, German carmaker BMW pulled out of a €2bn ($2.2bn) order, albeit just 4pc of Northvolt's order book of $55bn, according to its 2022 annual report – underscoring the [slowdown in European demand for electric vehicles]https://direct.argusmedia.com/newsandanalysis/article/2603432) (EVs) and therefore battery materials. Carlsson maintains that the "long term outlook for cell manufacturers — including Northvolt — is strong", despite the "challenging macroeconomic environment." And while the Swedish government has declined to invest, Northvolt did receive a €5bn ($5.58bn) loan in January — the largest loan raised by a climate tech firm in Europe to date, along with €942mn from the European Investment Bank (EIB). Overall, the company has received around €15bn ($16bn) of investments to date — in debt and equity — since its founding in 2017 by two former Tesla executives, comfortably making it Europe's best-funded start-up, ahead of fintech firm Klarna at $4.6bn. However the road ahead is challenging and costly, and additional support will be needed. "Northvolt haven't gone under but are not going to produce any CAM material until 2026 at the earliest, so difficult times, the EU needs to step up and support," a market participant commented. The scale of growth and support being given to China's battery and electric vehicle (EV) sectors is also compounding the difficulties raising investment for European projects. China accounted for 83pc of global battery production last year, according to the IEA, and subsidy-funded EV manufacturers CATL and BYD have continued to expand capacity this year (see graph). China has subsidised its EV industry to the tune of around $230bn between 2007 and 2023, including $45bn last year, according to a study by the Centre for Strategic and International Studies (CSIS). "This scares off the capital from the [European] battery market. It takes a full reassessment of the industry, which takes a long time. Capital is not cheap and rate cuts are only coming in now, so it will be a while," another market participant said. China's battery dominance continues to hamper Europe "This narrative is bigger than Northvolt – Asian manufacturers generally and Chinese manufacturers specifically are in the lead, very clearly", said Jeffrey Chamberlain, chief executive of US-based venture fund Volta Energy Technologies. "The idea that a start-up can catch up and manufacture cells, of equal or better quality at volume, might have been viable 10-15 years ago, but it is increasingly becoming incredibly challenging," Chamberlain said, arguing that western firms at all stages of the supply chain should sign joint ventures with China instead of engaging in direct competition, offering access to their markets with local manufacturing as well as "innovation for next-generation products". Despite recent setbacks, Northvolt has not revised its goal of building four large factories before the end of the decade in Sweden, Germany and Canada – remaining committed to a scale of ambition that is drawing concern from some industry participants. "The only way for success now is through strategic alliances, just look at InoBat and Gotion," said Ben Kilbey, former director at Britishvolt. "[It] feels like recent history repeating [itself]. Britishvolt was advised that it could make a battery factory in two global locations (UK and Canada) before it had made a single cell […] Now Northvolt is in a pickle and having to scale back its global, vertical integration, ambitions. And it's had around €15bn thrown at it," Kilbey added. Chinese companies have outlined lithium-ion battery manufacturing capacity for next year that far exceeds expected demand (see graph), which may further weigh on prices for component materials, squeezing the margins of any manufacturers of these materials outside China such as Northvolt. By Chris Welch Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Overprotectionism harmful for EU stainless: Marcegaglia


24/09/20
24/09/20

Overprotectionism harmful for EU stainless: Marcegaglia

London, 20 September (Argus) — Trade barriers and a focus on protectionist measures alone will not save Europe's increasingly uncompetitive stainless steel industry and have the potential to accelerate deindustrialisation, according to major Italian steelmaker Macegaglia chief executive Antonio Marcegaglia. Speaking on the sidelines of the International Stainless and Special Steel Conference held in Rome this week, Marcegaglia said that an overdose of such measures threatens to reduce long-term demand while incentivising the import of steel-containing finished goods. "While trade measures for correcting unfair international competition are welcomed, this is not beneficial if you think about the whole value chain," he said. "We have seen that despite high duties and safeguards, competition from imports has only increased." Europe's stainless steel sector is under heavy pressure from decreasing demand and growing costs. EU sales of stainless steel producers declined by 26.7pc year on year in 2023 to €16.44bn, with 2024 sales due to decline by a further 18pc to €13.44bn, according to Marcegaglia data. Delegates surveyed by Argus at the conference agreed the industry is severely struggling, with 2024 revenues likely to be below the pre-Covid year of 2019. On the costs side, Marcegaglia said that while Europe already has the challenge of higher energy, labour, transport and capital costs relative to Asia, more recent hikes to key raw material costs have effectively made it uncompetitive on all fronts. The availability of stainless steel scrap is getting tighter in the EU despite the fall in steel production, which together with high ferro-alloy prices has increased volatility for producers. A rising trend of upstream integration among Asian producers has increased their ability to control the costs of their key input, nickel pig iron, causing European scrap to become expensive relative to Asian NPI. Battling an unfavourable cost structure and lower scrap availability, European producers moved to start importing NPI in large volumes this year, despite its environmentally unfriendly nature relative to scrap. Europe's NPI imports from Indonesia equated to 10,000t of nickel metal content in January-July, moving up from zero in 2023, according to Red Door Research managing director Jim Lennon. "The reason for NPI inflows [into Europe] was the differential between the stainless scrap price and NPI," Lennon said at the conference. "NPI was cheaper than stainless steel scrap and so it was a big incentive to bring NPI into the supply chain." Marcegaglia said decarbonisation is a challenge for the European industry given the region is now wholly cost uncompetitive, and suggested the industry agree on green premiums to share CO2 related costs. "Given Europe's already high scrap utilisation, efforts for further improvements are complex and costly," he said. "The steel industry has to balance between environmental and economic sustainability." Delegates at the conference agreed decarbonisation will have to take a back seat as the European industry as a whole focuses on survival. "As far as 2030 net-zero goals are concerned, you can forget about them," industry equipment supplier Alfa Laval Technologies global sourcing manager and supplier development manager Marcus Lindholm said. Marcegaglia said that a possible pathway to recovery for the beleaguered industry is through the pursuit of supply chain co-operation, as current fierce competition between EU players is compounding its profitability problems. The group is strategically looking at further opportunities for upstream integration to stabilise its supply chains and improve its carbon footprint, while enlarging its product range to include both flat and long products. Earlier this week, it announced a £50mn ($66mn) investment to build a new electric arc furnace at its existing plant in Sheffield, in the northeast UK, which will increase the mill's stainless steel products output to over 500,000 t/yr. It is further committed to investment at its Oldbury, UK, tube plant, while also working towards expanding its product range from its Fagersta rolling mill in Sweden. By Raghav Jain Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

UK's RJH ceases trading, merges with Amalgamet


24/09/19
24/09/19

UK's RJH ceases trading, merges with Amalgamet

London, 19 September (Argus) — London-based minor metals firm RJH Trading (RJH) will cease its trading operations and all business will be transferred to Amalgamet Limited, Argus learnt today. Starting from 1 October, Amalgamet — the physical trading arm of non-ferrous metals at UK-based AMC Group — will take over the management of all RJH operations. Amalgamet is hiring the team from RJH, including Charles Swindon, the founder and managing director of RJH and former chairman of the Minor Metals Trade Association (MMTA), who will work as a consultant. Senior RJH traders in Scandinavia and India will trade for Amalgamet. Amalgamet, also headquartered in London, aims to expand further into more high-growth metals and take advantage of trading a greater diversity of metals and concentrates, both parties told Argus . Amalgamet mainly supplies base and minor metals, and through the merger will add new products that RJH has been trading for years including ferro-alloys such as ferro-chrome, ferro-silicon and other minor metals such as magnesium. For several metals including antimony there will be a crossover, as both trading firms have positions in the market. Charles Swindon told Argus the mix of the two portfolios is a good match and added that it is important to spread risk at a moment of geopolitical fragmentation. "This [partnership] brings over 100 years of invaluable trading experience in all metals as well as new opportunities in all parts of the world," he said. The financial details of the transaction have not been disclosed. By Cristina Belda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

EU HRC market gears up for mill consolidation


24/09/19
24/09/19

EU HRC market gears up for mill consolidation

London, 19 September (Argus) — The European hot-rolled coil (HRC) market is gearing up for potential consolidation over the coming year, as mills grapple with tough market conditions. The share prices of key European producers have rallied in recent days, despite continued weakness in HRC prices. Global steelmaker ArcelorMittal's shares traded above €22/share ($24/share) on the Luxembourg Stock Exchange at 12:30 GMT today, up from €19.70/share on 10 September. This strength is partly attributable to the expected release of economic stimulus measures in China, and the US Federal Reserve's recent interest rate cut, sources suggest. But market strength could also be because of growing talk that a new wave of consolidation is on its way, fuelled by decarbonisation efforts and the strained positions' of some mills. There has long been talk that steel coil producer Tata Steel Netherlands could be sold, after the Dutch state agreed to contribute to its decarbonisation spend. Recent difficulties at Germany's ThyssenKrupp have also sparked suggestions it could be an acquisition target. Czech Republic energy company EP Corporate Group (EPCG) recently completed its purchase of a 20pc stake in ThyssenKrupp's Steel Europe division, and could increase this to 50pc in the near future. EPCG owner Daniel Kretinsky may be seeking a strategic partner to help run the business, sparking talks that other mills could bid for a stake in the company. ThyssenKrupp shares were trading at €3.20/share on Deutsche Borse Xetra at 12:30 GMT today, up from €2.78/share on 10 September. Concerns over strong positions in niche markets, particularly tin plate, saw Tata Steel and Thyssekrupp call off their proposed joint venture in May 2019. But the market is in a different position now. Some mills have reduced capacity but new entrants are trying to join the market as green producers. And the global market is oversupplied, putting European producers in a difficult financial predicament, especially given their capital-intensive efforts to decarbonise. In the case of ThyssenKrupp, expectations that the mill will reduce its production footprint could partially alleviate potential competition concerns in the event of a takeover. By Colin Richardson Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US Fed cuts rate by half point, signals more: Update


24/09/18
24/09/18

US Fed cuts rate by half point, signals more: Update

Adds chairman Powell comments, economic projections. Houston, 18 September (Argus) — The US Federal Reserve cut its target interest rate by 50 basis points today, the first rate cut since 2020, with policymakers signaling they expect to make another half-point worth of cuts by the end of 2024. The Fed's Federal Open Market Committee (FOMC) lowered the federal funds rate to 4.75-5pc from the prior range of 5.25-5.5pc, which was a 23-year high. The Fed had kept the target rate unchanged since July 2023 after hiking it for more than a year in the most intense rate-tightening campaign in four decades to quash inflation, which peaked at 9.1pc in mid-2022. "The committee has gained greater confidence that inflation is moving sustainably toward 2pc, and judges that the risks to achieving its employment and inflation goals are roughly in balance," the FOMC said in its statement after the two-day meeting. "Job gains have slowed, and the unemployment rate has moved up but remains low." In their latest economic projections, the Fed board and policymakers expect the target rate range will end 2024 near a midpoint of 4.4pc compared with an end of year midpoint of 5.1pc projected in June, which implies further cuts amounting to 50 basis points by the end of 2024. Policymakers also penciled in another 100 basis points of cuts over the course of 2025. "We're recalibrating policy down over time to a more neutral level and we're moving at the pace that we think is appropriate given developments in the economy," Fed chair Jerome Powell told a press conference after the meeting. "The economy can develop in a way that will cause us to go faster or slower. The US economy is in a good place and our decision today is designed to keep it there." The Fed's economic projections see core Personal Consumption Expenditures inflation — the Fed's favorite measure of inflation — ending 2024 at a median rate of 2.6pc, down from a prior forecast of 2.8pc. Policymakers see core PCE inflation falling to a median of 2.2pc by the end of next year. The outlook for the unemployment rate for the end of 2024 climbed to 4.4pc from 4pc penciled in at the June meeting. Policymakers expect gross domestic product (GDP) growth to end 2024 at an annual 2pc, slightly down from a prior 2.1pc projection. The latest policy meeting comes as the Consumer Price Index (CPI) eased to an annual 2.5pc in August , down from 2.9pc in July, the Labor Department reported on 11 September. Inflation had ticked up to 3.5pc in March from 3.1pc in January, prompting the Fed to turn more cautious about beginning its rate cuts. US job growth has recently slowed sharply, falling to an average 116,000 in the three months through August from 211,000 for the prior three months. The jobless rate rose to 4.3pc in July, the highest in three years, before edging down to 4.2pc in August. By Bob Willis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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