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Brazil iron ore exports of 58 mil mt at risk in 2019 on new law hitting operations

Around 8 million mt of seaborne Brazilian iron ore supply may be at risk of being lost in 2019, over and above Vale’s estimated 50 million mt from southern Brazil taken out of the market, as a new regulation bans upstream dams for collecting mining waste, consultancy Wood Mackenzie said.

Iron ore units of Usiminas, Gerdau and smaller Brazilian miners stand to be affected the most by the ban, while CSN Mining is likely to be unaffected directly, although third-party output for processing could be cut, Wood Mac said in a report. Anglo American, which operates the Minas-Rio pellet feed mining and export chain, does not have a dam of the upstream construction method, Wood Mac said.

“The supply cutbacks will most likely come from Usiminas, Gerdau, Mineracao Morro do Ipe and junior miners that sell run-of-mine (ROM) ore to Vale and CSN,” Wood Mac said.

“Pellet feed production from Usiminas is slated to account for half of the export declines, with the other half being sinter feed from the remaining impacted producers.”

The February 15 regulation from Brazil’s National Mining Agency established plans to ban all tailings dams built with the so-called upstream method, in a process finalizing deactivation and decommissioning taking up to four years.

“Companies holding such structures will have six months to present a technical decommissioning project and until 15th August 2021 and 15th August 2023 to fully conclude deactivation processes of inactive and active dams, respectively,” Wood Mac said.

Following the January 25 burst at Corrego do Feijao’s dam, Vale announced it would expedite work on an earlier program already committed to decommission all its upstream dams, taking out 40 million mt/year from supply over three years due to disruption, with partial replacement of ores from other sites.

Wood Mac reviewed a total of 226 iron ore tailings dams in Brazil and said 35 may be potentially be affected by the decree, as they are classed as upstream, or as construction method unknown.

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CSN is Brazil’s second-largest iron ore exporter and Wood Mac expects the company will likely see its own production chain unharmed, citing remote upstream dams employed limiting disruption to volumes.

Wood Mac estimates Vale’s losses of 50 million mt this year split between 20 million mt of net losses from decommissioning dams, and 30 million mt from Brucutu’s shut down.

A further 8 million mt of iron ore supply losses shifts the global mining cost curve-based incentive supply price to $90/dry mt CFR China, up from the $85/dmt after pricing in Vale’s losses, Wood Mac said.

“However, this (price) assumes all else remains equal and at such high prices we could begin to see competition from scrap as a cheaper steelmaking feedstock, or demand destruction — even a small decline in Chinese hot metal production removes a big chunk of seaborne iron ore demand,” Wood Mac said.
Source: Platts

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