Spot and paper flew. Steel has not updated. CISA output for the last 10 days of January remains outrageous.
In news, Vale’s Q4 production report was encouraging for supply:
Vale’s iron ore fines production totalled 300.4 Mt in 2020, in line with 2019 as a result of (i) the resumption of halted operations such as Vargem Grande and Timbopeba; (ii) S11D ramp up; and (iii) full year operating Alegria site. These positive effects were fully offset by: (i) constraints in tailings disposal in Itabira and Brucutu; and (ii) delays in opening new mining fronts in Serra Norte; (iii) COVID-19 impacts; and (iv) 4-month stoppage of Fazendão site.
In 4Q20, Vale produced 84.5 Mt of iron ore fines, 5% lower than in 3Q20 mainly due to higher rainfall levels and tailings disposal restrictions in Southeastern System.
Although the pandemic-related impacts and measures reduced productivity in all businesses and postponed, in 2020, the start-up of the new iron ore assets, Vale remains confident to achieve 400 Mtpy capacity by the end of 2022.
Considering production restrictions, Vale ended 2020 with 322 Mt of production capacity and expects to achieve 350 Mt capacity by the end of 2021.
Vale’s pellet production totalled 29.7 Mt in 2020, 29.0% lower than in 2019, as a result of lower pellet feed availability from Vale’s sites and production adjustments according to market conditions. Vale’s pellet production was 7.1 Mt in the quarter, down 1.4Mt sequentially due to lower pellet feed availability from Brucutu and Itabira and maintenances in Tubarão 6 pellet plant. In January 2021, Vale resumed Vargem Grande pellet plant operations, halted since February 2019, adding 7 Mtpy of pellet plant capacity (from 46.8 Mtpy to 53.8 Mtpy). Vale’s bottleneck for pellet production continues to be the lower pellet feed availability from its operations.
Sales volumes of iron ore fines and pellets totalled 286.1 Mt in 2020, 5% below iron ore fines production. In order to supply clients during 2019, Vale drew down its operational inventories, achieving unsustainable low levels. During 2020, Vale needed to rebuild its operational inventories, supporting greater adherence between sales and production in 2021.
In 4Q20, Vale’s sales of iron ore fines and pellets reached 91.3 Mt with a premium of US$ 4.3/t3. Vale achieved record sales to China in 4Q20, totalling 64 Mt (vs. 58 Mt in 4Q19).
It looks to me like Vale could very easily beat its own guidance, given production is already at 340-350mt if the last two quarters are annualised. There’s another 14mt coming in the next 6-8 months then 21mt in Q4.
In effect, Vale will be very close to its 400mt output capacity by year-end 2021, a year earlier than its headline numbers suggest.
This is going to hurt iron ore as China slows in H2 and crush it 2022 as FMG also brings 22mt of new volumes.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
