Vale keeps guidance after Itabira halted: Update

Adds reaction to the mine closure throughout

Brazilian iron ore producer Vale has maintained its annual output guidance of 310mn-330mn t after a court ordered it to suspend mining at its 36mn t/yr Itabira complex in Minas Gerais to combat a growing Covid-19 outbreak.

Vale suspended operations at Itabira's Conceicao, Caue and Periquito mines in compliance with a 5 June decision issued by the regional labour court of the third region that reinstated the interdiction term issued by Minas Gerais labour officials, Vale said on 6 June.

The suspension may result in temporary shortage of pellets for the domestic market as the Itabira complex provides pellet feed to the Tubarao complex, Vale said.

"Considering the expected monthly production of 2.7mn t from the Itabira complex for the coming months and the provisioning of up to 15mn t of losses associated with Covid-19 in 2020, there is no need, at this moment, to revise the guidance," Vale said.

The ruling will remain in effect until a court rules on the merits of the interdiction or until Vale implements control measures for Covid-19 as set by labour inspectors, Vale said. It faces a daily fine of 500,000 real ($100,800) for non-compliance.

The Itabira complex, in Vale's southeastern system, accounted for 36mn t, or 12pc, of the company's 302mn t of fines production in 2019 and 6mn t of Vale's 59mn in the first quarter.

Iron ore prices at China's ports, the seaborne market and in the futures market rose today as the market reacted to the Itabira suspension.

Australian mainstream Pilbara Blend (PB) fines prices hit 800 yuan/wet metric tonne (wmt) ($113/wmt)) at Tangshan, while Qingdao prices rose to Yn795/t. The Argus portside PBF index was at Yn764/t on 5 June.

Dalian commodity exchange September iron ore futures rose over Yn790/t soon after their 9am opening today, up from a close of Yn760/t at the end of the 5 June night session.

The contract was at Yn783/t at 3pm Singapore time today.

"The impact of the Itabira suspension is still within the previously expected range as the production target of 310mn-330mn t is being maintained. Markets overreacted to the news and portside prices shored up, with PB fines trading at Yn791-795/t over the weekend and moving up further on Monday," a Beijing-based trader said.

"There is no doubt that iron ore prices would remain high in the near future, while the booming steel markets in China will also support the iron ore market," he added.

A PB fines cargo in the seaborne market today fetched $103.55/dry metric tonne (dmt) on a 61pc Fe basis on the Corex trading platform, up from a traded price of $100/dmt on a 62pc Fe basis on the GlobalOre platform on 5 June.

"The suspension at Itabira may mean that supply from Brazil will not improve as expected in the coming months," a market participant from China said.

Seaborne iron ore prices have been supported this year largely because of the persistent supply disruptions from Brazil, caused by dam-related closures, record rainfall and Covid-19-related disruptions.

Market participants have highlighted the risks to Vale's ability to meet its production guidance for the year because of the disruptions, while at the same time global steel production cuts and iron ore diversions to China have offset some of the supply cuts.

Argus 62pc Fe iron ore prices rose back above $100/dmt on 5 June, with the 65pc Fe fines index moving up to $115/dmt on the same day amid tight port inventories in China and persistent supply woes.

Another market participant from China said that "steel demand outlook in China cannot be overseen" in determining the iron ore price outlook despite the supply woes.

"We are entering a period of monsoon and high temperatures in China and that will curb some of the downstream activity further," he said.

By Deepali Sharma and China staff