Ann: 2021 AGM Chairmans Address, page-14

Supply concerns lower as Vale dampens ramp-up expectations

One of the key factors that drove iron ore’s mad charge to records of more than US$230/t earlier this year was falling supply from Brazil, where global major Vale has been struggling to rebound since the Brumadinho dam disaster in early 2019.

It has long declared plans to hit a 400Mtpa production run rate by 2022, though its language around what that means has been unclear.

Vale provided a bit more detail today and it is undoubtedly bad news for the Brazilians and good news for Australian miners.

The company has given up any hope of hitting the 335Mt upper end of its production guidance for 2021, dropping its guidance range to 315-320Mt for 2021.

Its 2022 guidance will be 320-335Mt, with a targeted nameplate rate of 370Mtpa. That means its 400Mtpa is now a “mid-term” goal, likely to be around 2024, meaning the flood of supply expected from Vale could be some way off.

At the same time, expansion efforts from Australian companies appear to be picking up pace.

Gina Rinehart’s Roy Hill and Hancock announced a deal with Mineral Resources (ASX:MIN) this week to cooperate on port and rail facilities for the proposed berth at South West Creek at Port Hedland.

Roy Hill, Hancock’s Atlas Iron and MinRes are all looking to expand production substantially over the coming years, with BHP recently gaining environmental approval to increase its export limit from 290Mt to 330Mt.

Rio Tinto, meanwhile, could make a decision on the development of its portion of Guinea’s Simandou iron ore mine in 2022, according to a note from UBS, while it is also eyeing off the development of a series of mines in the Pilbara to increase production to 345-360Mt by the middle of the decade.

Benchmark 62% iron ore fines prices rose more than 6% according to Fastmarkets MB on Monday, climbing to US$103.27, while Dalian and Singapore futures also spiked on speculation mills were restocking ahead of an expected relaxation of production curbs in December.

It comes after months of sliding steel output caused by emissions-related restrictions imposed on factories by Chinese authorities, who should achieve their aim of keeping steel production from beating 2020’s record 1.065Bt rate.

“Iron ore futures pushed higher alongside a rally across the wider metals sector. However, sentiment was supported by rising optimism in the Chinese
steel sector,” ANZ senior economist Adelaide Timbrell said in a note.

“Chinese research group Mysteel said that pig-iron output would rise in December as idled plants are restarted.

“This could mark the inflection point after months of pressure on output.

“Reports of lower output from Brazil also supported prices. Vale, the Brazilian producer, lowered its top end production guidance for 2021 to 320m tonnes, from 335m tonnes.”



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