Vale Itabira halt likely short but other closures could uphold iron ore price: analyst

The suspension of operations at Vale’s Itabira iron ore mine complex in southeast Brazil due to a COVID-19 outbreak is likely to continue for a relatively short time (weeks, not months), so the impact on full-year iron ore supply should be relatively small, Jefferies’ Research Services equity analyst Christopher LaFemina said in a report following the June 6 closure by court order. However, there is a risk of other mine closures due to the uncontrolled spread of the virus in Brazil, which means the risk to the iron ore price remains to the upside, the analyst said.

LaFemina noted that price rises were to be expected on the closure news as the iron ore market was already tight. On June 8, the first trading day after news of the closure, S&P Global Platts assessed the 62% Fe Iron Ore Index at $106.55/dry mt CFR North China, up $5.60/dmt from June 5.

Vale indicated that it had expected to produce 2.7 million mt of high-grade iron ore concentrate and fines per month from its Itabira complex. This 32 million mt/year run rate equates to about 10% of the company’s planned 2020 production of 310-330 million mt and compares to an estimated seaborne iron ore market of 1.46 billion mt for 2020, Jefferies said in a note.

Vale said in a June 6 statement that it sees no need to revise its existing full-year guidance due to the Itabira closure. However it noted there could be a temporary shortage of pellets for the domestic market as a result.

The raw ore from the Itabira complex’s Conceição, Cauê and Periquito mines is a low-grade (~46% Fe content) hematite, noted LaFemina. Vale produces high-grade concentrate (66.5% Fe) and high-grade fines (65-66.5% Fe content) from this ore using jigging, magnetic separation, and flotation processes. About 60% of the production from this complex is concentrate and 40% is iron ore fines, the analyst said.

Concentrate from this complex is used as pellet feed at Vale’s Tubarão complex, which consists of eight different pellet plants and is the world’s largest pelletizing complex, with total capacity of about 37 million mt/year. Tubarão’s production has been well below capacity in recent years, LaFemina noted.

“Less iron ore production is unhelpful for Vale, but this could be fully offset by a positive impact on prices. We consider this supply disruption to be a short-term issue, as Vale is taking aggressive actions to control the spread of the virus at its mines and in local communities,” the analyst said.

According to the report, there have been 188 confirmed cases of COVID-19 at the Itabira iron ore complex – this was however not confirmed by Vale.
Source: Platts