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Vale Q3 iron ore output jumps 18% on quarter; guidance outlook subdued

Brazilian miner Vale produced 89.4 million mt of iron ore fines in the third quarter of 2021, 18.1% higher than in Q2 and up just 0.8% on Q3 2020, the company said late Oct. 19. However, the company expects production for the whole of 2021 to be in the lower part of its annual guidance of 315 million-335 million mt, due to market considerations, with lower demand forecast for lower-quality ores, it said.

The quarter-on-quarter increase was due to a seasonal improvement in weather-related conditions in the company’s Northern System which boosted performance at its Serra Norte and S11D mines, together with an increase in production at its Vargem Grande mine in its Southern System via the use of dry processing, with adjustments to the flowsheet of one of its wet-processing plants, the company said in a statement.
In addition, performance improved at Itabira, in the company’s Southeast System, due to better run-of-mine availability, the company said. Higher third-party purchases were also made, although these were proportionally lower than in the previous quarter (5.8% of total production in Q3 vs 6.2% in Q2); while the Fábrica mine reached its full capacity of 6 million mt/year, after the resumption of its beneficiation process in second quarter, it said.

“Vale remains committed to its capacity resumption plan, which is also associated with eliminating restrictions and optimizing costs,” it said. The company has been striving to raise production following a series of mine production curtailments introduced for safety considerations after the fatal Brumadinho tailings dam collapse in January 2019.

Vale added that in third quarter it started its Maravilhas III dam operations in the Vargem Grande complex, following the issuance by relevant authorities of a positive Stability Condition Declaration. As an additional step on the resumption plan, Vale started to commission the long-distance conveyor belt segment close to Vargem Grande dam in October, which has resumed after tests certified the absence of increased risk to the structure. Once commissioning is complete, an increase of 6 million mt/year is expected in the production capacity of the Vargem Grande site.

Vale’s Q3 pellet production totaled 8.3 million mt, in line with Q2 levels and still restricted by pellet feed availability in Itabira and Brucutu, the company said.

‘Value over volume’
“Production and sales strategy is based on market conditions, prioritizing value over volume, with focus on margin maximization. As consequence, for the fourth quarter this year, Vale should lower its supply of high-silica low-margin products by around 4 million mt, as demand for this kind of product has been weaker,” it said in the statement.

“This movement does not change our production guidance for the year, of 315-335 million mt, but should take us below the middle of the range,2 it said. “If this scenario persists, we should also reduce the offer of low-margin products in 2022 by around 12-15 million mt. The purchase level of third-party ores may also be adjusted accordingly.”

High-quality ores with lower levels of contaminants are being increasingly sought after by steelmakers as these help reduce the amount of coal used in blast furnaces, thus trimming carbon emissions.

Sales volumes
Sales volumes of iron ore fines and pellets totaled 75.9 million mt in third quarter, in line with second quarter, the company said. The approximately 13 million mt gap between production and sales in third quarter was an effect of Vale’s value over volume approach, by reducing sales of high-silica iron ore products in September due to market prices; and transiting inventories across the supply chain, which is expected to revert in fourth quarter, depending on market conditions, it said.

Jefferies International analyst Christopher LaFemina said Vale’s Q3 iron ore production was above analysts’ consensus expectations and that management is highlighting its operational flexibility as it is executing on its value over volumes strategy.

“Production cuts from Vale should help the iron ore market, but we continue to forecast a demand-driven decline in iron ore prices in 2022,” LaFemina said in a note to clients.

“We are encouraged by this supply discipline to support prices, but we continue to expect the iron ore price to fall to an average of $90/mt in 2022 due to weaker demand in China,” the analyst said.
Source: Platts

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