Vale considering pellet feed exports from 2020

Brazilian mining company Vale is considering entering the iron ore concentrate export market from 2020, in light of a severe and growing shortage of pellet feed, the firm's executive director for ferrous and coal Peter Poppinga said today.

Vale already has arrangements in place to supply concentrate to some Indian and Middle Eastern companies which have idled pellet plants, Poppinga said. But a more concerted entry into the export market would be off the table until 2020 at the earliest.

Speaking in New York this week, Poppinga warned of domestic concentrate depletion around the world, estimating that this year there has been a 25mn t global shortage of high-grade pellet feed, and that this figure could double in the next 3-4 years.

Poppinga noted that this pellet feed shortage represents an opportunity to Vale. The company's Itabiritos project produces 52mn t/yr of 68.6pc Fe pellet feed, and it plans to start up its 10mn t/yr capacity Gelado pellet feed project in the second half of 2021.

Additionally, Vale has ambitious growth plans in the Southeastern System, targeting 2mn t/yr production in 2020 and then a long-term ramp-up to 20mn t/yr.

Today Vale signed an agreement to purchase iron ore exploration company Ferrous Resources from Icahn Enterprises for around $550mn, aiming to close the transaction in 2019 subject to antitrust approval. The acquisition will add 4mn t/yr of pellet feed capacity to Vale's portfolio in the Southern System, with the potential for direct reduction quality. Commenting on the acquisition today, chief executive Fabio Schvartsman said most of this additional output will be consumed by Vale itself and the net effect on the seaborne market will be minimal.

Other producers also have additional supply in the pipeline - from Sweden, Canada and most notably Anglo American's Minas Rio project, but this growth alone will struggle to keep pace with surging global appetite for pellet. Just lately, Tosyali's Algeria pellet plant began the initial steps to launch production, for which it is understood to be importing concentrate through the port of Arzew.

Minas Rio is expected to come back on line this month, but market participants are wary that a full ramp-up may not materialise for some time. Anglo American suspended operations at Minas Rio in March 2018 after two leaks were found in the iron ore slurry pipeline. In light of that halt, Minas Rio's 2018 production guidance stands at 3mn t.

The concentrate market has since been struck by another supply disruption, with Chilean producer CMP declaring force majeure to some buyers on 21 November after a fatal accident at Puerto Guacolda II port.

But despite these short- and long-term fundamentals, sentiment in the seaborne concentrate market has been bearish lately, with a recent drop in Chinese steel mill profits dampening demand for high-grade iron ore products. In Tangshan, the 66pc Fe domestic concentrate price closed November at Yn720/dry metric tonne (dmt) ($105) excluding value-added tax and freight, down by Yn70-80/dmt from mid-November.