Vale’s iron ore fines production totaled 68.0 Mt in 1Q21, 14.2% higher than in 1Q20, as Vale progressed on its operational stabilization and resumption plan. The year on year growth is attributed to: (i) the gradual resumption of halted operations in Timbopeba, Fábrica and Vargem Grande complexes throughout 2020; (ii) stronger performance in Serra Norte and lower rainfall in January; (iii) higher third party purchases; and (iv) the restart of Serra Leste operations, which were partially offset by (i) scheduled maintenances in S11D; and (ii) the lower performance in Itabira complex related to tailings disposal restriction in the complex. The 19.5%q/q decline in production is mainly attributed to the usual seasonality.
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Following its stabilization and resumption plan, Vale achieved a production capacity of 327 Mtpy production in 1Q21, due to the commissioning of Timbopeba’s beneficiation lines (+7Mtpy), which was partially offset by performance restrictions in different sites (e.g. Itabira and Mutuca), as disclosed previously.
The resumption plan advanced with the start-up of Vargem Grande’s tailings filtration plant, the first of four filtration plants in Minas Gerais. The second plant, located in Itabira, is expected to start operation by the end of 2021.
Northern System
The Northern System performance was solid, as a result of (i) lower rainfall levels in January in Serra Norte; and (ii) the resumption of Serra Leste in December 2020, which were partially offset by scheduled maintenances carried out in the S11D.
As previously announced, a fire occurred in one (CN6) of the eight ship loaders at the Ponta da Madeira Maritime Terminal on January 14th, 2021. The fire was controlled, without casualties or environmental damage. On January 28th , shipping activities at Southern berth of Pier IV were resumed using the second ship loader (CN7) available at the berth. Vale expects to conclude the maintenance activities at the affected ship loader (CN6) by the end of 2Q21, without impacts on shipments and production in 2021.
Southeastern System
Southeastern System’s production was 15% higher than in 1Q20, as result of (i) partial resumption of Timbopeba site, which was halted in 1Q20; and (ii) full quarter production in Fazendão site, which was halted from end of February to July 2020, due to the depletion of the licensed mining area. The positive effects were partially offset by (i) lower productivity at Itabira
Complex, operating under temporary tailings management solutions; and (ii) lower ROM availability in Água Limpa, located in Minas Centrais complex, as expected in its mining plan.
In March, Vale started commissioning to increase wet processing production in Timbopeba site.
At the end of commissioning process, which is expected to last 2 months, Timbopeba will operate with an iron ore production capacity of 12 Mtpy, adding 7 Mtpy to its current capacity, by using 3 additional beneficiation lines at the processing plant. The tailings generated by the wet processing will continue to be disposed of in Timbopeba pit, a bedrock self-contained structure.
Southern System
The robust operational performance in 1Q21 (vs. 1Q20) can be in large attributed to (i) higher production from Vargem Grande Complex, which gradually resumed operations in 2020; (ii) restart of dry processing activities at Fábrica site; (iii) higher third-party purchases.
In March, Vale started up the tailings filtration plant located at the Vargem Grande Complex. In addition to reducing the dependence on dams, this allows for an improvement in the average quality of Vale’s product portfolio with the use of wet processing on the site. The addition of 4 Mtpy of production capacity, as previously announced, will take place from the third quarter of 2021 along with the start-up of the Maravilhas III dam, which is in its final stage of construction and it will receive the slime from the plant.
It’s a small miss on production with expectations around 72mt, explained by the fire and a few disruptions. The miss on sales is much bigger at 59mt. It’s not clear why sales were so poor. Bloomie says it is restocking supply chains into its various blending facilities in Asia. If that is the case then it will suddenly unleash 40mt of annual sales shortly.
There is no reason that Vale wouldn’t ramp up its sales alongside production and its annual forecasts are unchanged at 315-335mt. With another 70mt of capacity to come over 18 months:
Some press is reporting the report as bullish but Vale is more or less on track to flood the iron ore market as China slows.
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.
