Vale CFO confident to meet 310 mil mt iron ore sales in 2012 after poor Q1
Monday, 30 April 2012 | 00:00
Brazilian iron ore miner Vale is confident of meeting the group's revised 310 million mt iron ore sales target for 2012 after a poor first quarter total of 65.19 million mt for iron ore and pellet shipments, the company's chief financial officer, Tito Martins, said Thursday.
Vale expects 20-25 million mt/month of iron ore shipments for the remainder of 2012, Martins said in a phone interview with Platts from Rio de Janeiro.
Shipments would have to be higher than 25 million mt/month in some periods to meet the 310 million mt target, based on the 244.81 million mt withstanding, or 27.2 million mt monthly average required for the balance of 2012.
The company had forecast 312 million mt in total iron ore sales for 2012 on November 28 but revised this earlier this year, he said.
Shipments surged in March to 31.7 million mt as Vale moved more from stockpiles built up earlier this year, he said. Heavy rain flooded mines and impacted infrastructure in southern Brazil, as well as the more typically seasonally hit northeast Carajas operations.
"This is very unusual to have so much rain in the south as well as the north, we also had a bridge that was out for a week," Martins said.
The remainder of the year should not see such environmental impacts crimp iron ore output, allowing shipments to normalize.
PELLET DEMAND STRONG INDICATOR
Vale said strong pellet demand based on quarterly shipments holding at 10.4 million mt -- up 0.9% on Q1 2011 while fines and other products dropped by 21.6% to 54.79 million mt -- indicates a still robust steel sector.
Pellet demand usually falls in a downturn as less of the higher-quality product is sought by steelmaker less incentivized to maximize production.
Demand for direct-reduced iron pellet from the Middle East is strong, Martins said. Vale has a new DRI pellet plant in Oman that ramped up last year to meet regional demand from electric arc furnace-based mills.
"We have sold everything we have shipped to China," he said. "The demand is higher than expected."
China and Japan's share of iron ore and pellet sales grew, to take over 58% of total material shipped, from a 51.8% share in Q1 2011. Europe took 3 million mt less, with its share falling to 16.2% in Q1 2012, from almost 20% a year ago.
Growth in Asia's biggest economy may be slowing, but Vale noted still strong steel demand for projects such as rail lines and high rise buildings demanded in high population density cities. The high costs of mining alternative domestic ore bodes well for Vale, the company added.
Iron ore prices have recovered from Q4 2011 and are poised to stay supported, he said.
Vale was unable to fully benefit from higher CFR China-based spot prices in Q1 as the market recovered from the October crash, as bunker fuel prices climbed during crude oil's rally over Q1 to reduce net back FOB Brazil prices, Martins explained.
As more customers moved away from the quarterly lagged index-linked pricing system, to price term volumes based on the average over the quarter or other shorter-term frameworks, Vale suffered a significant "one-off effect." This reduced revenue based on the September 2011 to November 2011 average price that would have set Q1 2012 prices under the old system.
Also, average price premiums for each 1%-Fe differential declined 8.9% against Q4, Vale added.
Operating revenue from iron ore in Q1 fell to $6 billion from $7.29 billion a year earlier, while for pellets, it was $1.69 billion, compared to $1.87 billion.
TRADE PLATFORMS FOR PRICE TRANSPARENCY, NOT VOLUME: MARTINS
Vale plans to participate on the globalORE, and China's CBMX iron ore trade platforms, seeing them as a place to discover price levels, rather than conduct large volumes of trade.
"We will participate on globalORE and CBMX, they can be a good place to show transparency, and be a reference," he said.
Vale is selling around 75% of its iron ore priced on-quarter and monthly index average, and 15% on the quarterly lag system. Europe is taking no spot-based iron ore, he said.
Martins said Vale is assured of meeting its $21.4 billion 2012 capex budget, as spending will rise from Q1's $3.68 billion, which was 34% higher than a year ago. Permits are expected to be forthcoming to allow for more progress on builds outs such as the Carajas additional 40 million mt/year project that may start up in 2013 and produce by the end of 2014, he said.