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Brazil’s Vale expects to increase its iron ore pellets production “slightly” in 2021 following 2020’s plunge and to ramp back up to its previous production levels of between 50 million and 60 million mt/year in 2022, depending on demand, executive director, ferrous minerals, Marcello Spinelli told analysts on a Q4 2020 results webcast Feb. 26.
“The main restriction is production of pellet feed,” Spinelli said, noting the company is still under capacity at various mines in its south and southeastern systems where dam operations were curtailed following the Brumadinho tailings dam accident in January 2019.
The company foresees “the best of our operations in 2022,” the director said. Costs in this area should generally fall in line with the increase in production, he said.
Vale’s pellet output dropped to 29.7 million mt in 2020, down 29% on 2019, with pellet sales down 28% at 31.2 million mt.
Falls were recorded at the company’s pelletizing plants both in Brazil and in Oman.
More FOB sales
Vale said in its Q4 2020 earnings release that it boosted the amount of pellets sold on an FOB basis, considered more advantageous at a time of rising freight rates than a CFR basis where the seller arranges freight.
CFR pellets sales of 3.6 million mt in Q4 2020 represented 42% of the company’s total pellets sales, while FOB pellets sales amounted to 4.9 million mt in the quarter, it said. “The increase of 1.0 million mt of FOB sales vs. 3Q20 is a result of demand improvements ex-China, such as Europe and Japan. Realized prices in 4Q20 averaged $152.6/t, increasing $11.40/t vs. 3Q20, mainly due to 13% higher 65% Fe price index, which was partially offset by lower pellet premiums.”
“In 1Q21, pellet contractual premiums improved significantly as a result of demand recovery in regions such as Europe, Japan and MENA and steel scrap price increase, supporting pellet premiums,” Vale said.
In Vale’s overall iron ore sales, the share of premium products reached 90% of the total in Q4, as a result of an increase in BRBF (Brazilian Blend) sales in China on strong domestic demand.
Iron ore mine production advances
Vale said that in Q4 it partially resumed all iron ore fines operations halted in 2019, “a significant milestone” to achieve its planned 400 million mt/year iron ore production capacity by the end of 2022.
In its Northern system, the Serra Leste mine and mill restarted in December after receiving the required Installation License. The site is expected to produce 4-5 million mt in 2021, reaching a 6 million mt/year run-rate by the end of this year.
In the Southern system, Fábrica mine resumed its activities in December after vibration tests certified the site structurally safe. Until beneficiation plant activities resume, expected in Q2, Fábrica will operate via dry processing and mechanical dismantling, adding around 2 million mt/year of production capacity, it said.
Also in the Southern system, in January 2021, Vale resumed production at Vargem Grande pellet plant. With a nominal capacity of 7 million mt/year, the plant is expected to reach approximately 4-5 million mt/year in 2021, depending on pellet feed availability. As part of a project to create production capacity buffers, Vale received in December the required licenses to start constructing the Capanema Project. This project adds 14 million mt/year capacity to its Timbopeba site, ensuring greater operational flexibility with low capital intensity, it said.
In addition to approving the Capanema project, Vale approved its Serra Sul 120 project in its northern system in 2020.
Jefferies International analyst Chris LaFemina described the restarts as “important steps in Vale’s ongoing recovery following Brumadinho.”
Renewable energy investment
In 2021 Vale expects to invest $5.8 billion, 31% more on year, mainly due to a higher spend on iron ore tailings filtration plants; investments in solar energy projects such as Sol do Cerrado to increase the share of renewable energy in Vale’s matrix and reduce average energy costs, and postponements from 2020’s investment program due to the COVID-19 pandemic.
Vale registered net income of $739 million in Q4 2020, after paying expenses of $4.863 billion in the quarter related to Brumadinho and COVID-19 donations, with the Brumadinho-related costs set to fall significantly from the current quarter. The result compared to net income of $2.908 billion in Q3 and a net loss of $1.562 billion in Q4 2019.
The Q4 result was upheld by a strong performance of the ferrous minerals business, with realized prices 17% higher and sales volumes 26% higher than in Q3, it said.
CEO Eduardo Bartolomeo said on the webcast that Vale had “a very good, even excellent Q4… but this is not a sprint, it’s a marathon, reshaping and re-rating the company,” following the fatal Brumadinho disaster. There were still several clean-up operations to be completed, such as the disposal of cash-draining assets including in palm oil and the VNC nickel subsidiary, and the company continues with strict capital discipline, he said.