Vale Eyes “$60-$80” Iron Ore Price Amid Slow Recovery

By Glenn Dyer | More Articles by Glenn Dyer

While Vale, the big Brazilian iron ore miner, and exporter will be boosting sales in 2020, the impact of any increase will not be felt until the back half of next year as the company’s plans to rebuild its ore inventories in Asia which have been run down in the wake of the January 25 mine tailing dam wall disaster.

That disaster sent iron ore prices soaring as Vale closed mines because of fears about unstable tailings dams and other problems. At the same time production problems and Cyclone Veronica took close to 20 million tonnes off Australian exports in the first five months of 2019, further boosting global prices.

Now as we end 2019, the price of iron ore is back around $US93 a tonne as Vale is looking at boosting production by around 15 million tonnes in 2020 and by a further 25 million tonnes in 2021.

Vale CEO Fabio Schvartsman said last week the company sees prices easing back from the current level for 62% fines. He told investor briefings last week Vale estimates prices will be in the range of $US60-$US80 per tonne for 62% Fe prices in the next year.

He said this would be “a comfortable band” for the company. It would also be a comfortable range for Australian producers, though for all it would mean lower earnings and cash flows, especially if prices end around the bottom of the range.

Meanwhile, in briefings in the US and London last week Vale’s senior managers said the company expects to lift total iron ore production (fines and pellet plant feed) to the range of 340 million to 355 million tonnes. 2018 production will end up around 310 – 320 million tonnes, but could end lower if a sharp slide in November shipments (they were down on October) is any guide.

The company said it is aiming to return production to 2018’s levels of around 400 million tonnes by 2023. The company said the January 25 disaster cost it 93 million tonnes of lost capacity this year.

Total 2019 exports of ore and pellets look like being around 319 million tonnes. the briefings were told of continuing hiccups at some mines in the past couple of months was slowing the build-up in capacity.

That helps explain a fall in November iron ore exports.

Brazilian iron ore exports totalled 27.25 million tonnes in November, down 19.8% year-on-year from 33.97 million tonnes in November 2018, according to data from the country’s ministry of economy showed.

But that was also down sharply – 18.3% – from October’s 33.35 million tonnes. These figures include data from Vale and several smaller producers.

“In two years, we can recover to the former capacity of 2018,” the company stated.

The briefings were told by the company’s management. Vale’s capacity – without any dam wall problems is around 450 million tonnes and the company is aiming to boost dry production of ore to as much as 70% of output over time with wet processing at around 30%.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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