Vale reports record Q1 as iron ore, copper prices soar in tight market
Brazilian miner Vale, one of the world’s largest iron ore producers and a major copper producer, reported record first quarter financial results late April 26 as prices for these commodities soared, partly due to supply-side issues.
The company said it continues to stabilize output following dam disasters that resulted in lower iron ore production in recent years and the continuing impact of COVID-19 on its operations, now seen reducing copper output.
In Q1, Vale reported a pro forma adjusted EBITDA of $8.47 billion, a record for a first quarter, compared with EBITDA of $3.04 billion in Q1 2020, with seasonally lower volumes partially offset by higher prices. Q1 iron ore reference prices rose to $166.90/mt from $89/mt a year earlier. The performance was mainly pushed by the ferrous metals and base metals divisions.
Second quarter EBITDA is likely to rise on continuing increases in both iron ore and copper during April, particularly as Vale has now paid off a major part of expenses related to its fatal 2019 Brumadinho tailings dam accident, executives said on an April 27 call with analysts.
S&P Global Platts assessed the 62% Fe Iron Ore Index at $193.85/dry mt CFR North China on April 27, up $2.40/dmt day on day to its highest ever, reflecting surging demand for steel amid a COVID-19 recovery stimulus, which has led to a flurry of new construction projects. The previous record was registered on Feb. 15, 2011, at $193/dmt.
The LME cash copper price stood at $9,849/mt April 27, close to a 10-year high amid concerns of production shortfalls in Latin America as demand grows from the electrification sectors.
Vale’s net income rose to $5.55 billion, an increase of $4.81 billion from fourth-quarter 2020, when the company registered payment of a chunk of Brumadinho-related expenses and asset impairment charges on its nickel and coal businesses.
Iron ore guidance
Vale is “confident” it will achieve its iron ore production guidance of between 315 million mt and 335 million mt this year, as it advances in its program to stabilize production following the 2019 dam disaster and the continuing impact of COVID-19, company executives said on the results call.
Analysts at Jefferies International said recently they continue to believe an outcome near the bottom of the guidance range is most likely.
Vale is working at a current iron ore production capacity of 327 million mt/year, ferrous executive Marcello Spinelli told analysts on the call. This compared with production of about 300 million mt in 2020. At the end of 2021, production capacity should grow to 350 million mt/year, reaching 400 million mt/year at the end of 2022 and 450 million mt/year in future, he said.
The company’s Q1 iron ore production was 68 million mt, 14.2% above Q1 2020.
Vale’s reference CFR price was $171.10/mt, and its average realized price CFR/FOB was $155.50/mt, an increase of $24.80/mt compared with Q4 2020.
With reference prices in April substantially above the company’s provisional price of $159.90/mt, it is expected that Q2 EBITDA will be positively impacted by the final pricing of these Q1 sales when ships arrive at destination ports, the company said.
After stability improvement work was concluded in Q1, the Itabiruçu, Capim Branco, Menezes II and Taquaras dams — all in the state of Minas Gerais — had an Emergency Level 1 protocol removed and were issued with positive Stability Condition Declarations, Vale said. “We are working on safety improvements for the 29 tailings storage facilities which remain at Emergency Levels and expect to gradually achieve satisfactory safety conditions for all of them by the end of 2025,” it said.
Copper at lower end of guidance
Vale is likely to lose 10,000 mt of copper this year, Vale’s base metals executive director Mark Travers told analysts on the call. This will be mainly due to the postponement of maintenance at its Sossego mine in northern Brazil due to COVID-19 considerations, which currently makes the planned maintenance project unfeasible, he said.
Vale’s copper production guidance was stated at the start of 2021 to be around 390,000 mt/year, later being reduced to a range of 360,000 to 380,000 mt. Currently, output is running around 360,000/mt for the year but is expected to normalize to 390,000/mt in the fourth quarter with higher production at Salobo in northern Brazil, where the Salobo 3 project is due to enter operation during 2022, Travers said.
Vale’s Q1 copper production plunged 19% on year at 76,500 mt, which was also 18.2% lower than in Q4 2020.
LME copper prices averaged $8,504/mt in Q1, up 19% quarter on quarter.
Vale said global refined copper demand increased 3.5% in Q1 from a year previously, while concentrate demand increased 3.8%, mainly driven by China where refined imports have reached record levels.
“On the supply side, global refined copper production increased 1.8% in 1Q21 vs. 1Q20,” Vale said in its statement. “Most mining operations which were disrupted by COVID-19 have returned to, or close to, normal operation. Containing the spread of COVID-19 however, continues to prove difficult, particularly in Latin American, and therefore, supply concerns, particularly concentrate supply, persist.”