Vale to restart Brucutu as rains hit northern system

Brazilian mining company Vale will resume operations at its 30mn t/yr Brucutu mine in Minas Gerais province within 72 hours, after a court order permitted the mine to operate. The restart comes as the company warned of disruption to its northern system shipments because of heavy rain.

Vale closed Brucutu, its second-largest iron ore mine, on 4 February following a court order. Brazil's environmental agency then withdrew its licence to operate the tailings dam on 7 February. Vale received clearance to start operations in late March, but another court order halted a restart.

The prospect of a restart at Brucutu pressured iron ore prices, with the most-active contract on the Dalian Commodity Exchange falling by 3.8pc today.

Vale reiterated its iron ore sales guidance of 307mn-332mn t for 2019, which is 50mn-75mn t lower than actual sales in 2018. Sales volume may come in at middle of the forecast range, it said. A tailings dam breach at Vale's Feijao iron ore mine on 25 January led to hundreds of death and resulted in restrictions being imposed on its mining operations in Minas Gerais.

Heavy rains in March and April affected iron ore shipments from the Ponta da Madeira port in Brazil, affecting production volumes at Vale's northern system mines. The northern system produces 65pc IOCJ fines, Vale's flagship product. IOCJ fines availability in seaborne markets is expected to be tight this year as additional supplies are diverted to blend BRBF fines in Malaysia and at Chinese ports. Supply of high-silica, medium-grade southern system fines could also be tight because of the mining restrictions in Minas Gerais.

IOCJ fines prices rise sharply

Prices of IOCJ fines have increased sharply this month as result of tighter supply and higher demand from mills, which are gradually stepping up their use of high-grade ore as steel demand and prices recover from a slump that started in November.

Higher steel prices in April have lifted profit margins, which typically prompts steelmakers to raise output rates. And winter steel production restrictions have been lifted in 28 cities, although partial restrictions will be imposed in Tangshan until September.

Profit margins for rebar producers have exceeded 500 yuan/t ($75/t), with some mills reporting profits of Yn600/t, after margins had stayed in a Yn100-500/t band since November.

The Argus 65pc Fe index, which closely tracks the IOCJ fines price, rose by 9.7pc in April to $108.9/dry metric tonne (dmt) yesterday. Five fixed-price basis IOCJ fines deals have been done on platforms this month. Two IOCJ fines deals were done at $109.5/dmt and $110/dmt on 12 April, one at $107.55/dmt on 11 April, one at $106.6/dmt on 9 April and one at $101/dmt on 1 April.

Deal activity for IOCJ fines has also been brisk in China's portside markets. "Demand for IOCJ fines and BRBF fines remained good with tight supply from Brazil. IOCJ fines sold at Yn788/wet metric tonne in Shandong, Yn5-8/wmt higher than yesterday," a Beijing trader told Argus yesterday. A Yn788/wmt portside price translates to a seaborne equivalent of $108.66/dmt.

"We are looking for IOCJ fines with early June delivery but have not been able to close a deal with sellers," said the manager of a northeast China-based steel mill.

The price differential between IOCJ fines and mainstream medium-grade fines has widened this week and will likely increase further in the near term, said the manager of a Tangshan-based mill. Some mills have been blending IOCJ fines with SSF fines to partially displace medium-grade ores in the furnace burden. The Argus 65pc and 62pc price differential was at $14.5/dmt yesterday, compared with $9.55/dmt on 1 March.