The miner first halted iron ore output at its venture on Monday March 12, after a rupture of the slurry pipeline designed to transport material from the mining site in Minas Gerais state to the port terminal in Rio de Janeiro state.
At that time, shipments were not affected because around 700,000 tonnes of iron ore were stockpiled, which was sufficient volume to meet the shipping schedules of the next few vessels.
The company then resumed production on March 27 at its normal pace.
But on March 29, Anglo American again halted output at Minas-Rio because of a new pulp leakage. This time, supply was paralyzed because the previous stocks had run down.
Operations are expected to remain suspended for around 90 days while the firm carries out a full inspection of the pipeline, it said on April 3.
The miner supplies the seaborne market with high-grade iron ore for buyers in Asia, Europe and the Americas.
Metal Bulletin’s 66% Fe iron concentrate index was $89.27 per tonne on Tuesday April 17, down from $97.57 per tonne on March 9.
Market effect Before the leakage, the Minas-Rio iron ore operation produced 16.8 million tonnes in 2017, up by 4% on an annual basis. This was just shy of its current operating capacity of 17 million tpy; the operation was licensed to expand to 26.5 million tpy by Minas Gerais’ mining chamber, CMI, in late January.
“If production is stopped for a full three months, we calculate that it will remove 3.8 million tonnes of high-grade iron ore from the market,” Metal Bulletin Research analyst Miriam Falk said.
“Using Metal Bulletin’s iron ore prices and last year’s production costs, our calculations show that Anglo American would lose $213 million in sales revenue as a result of a three-month-long production suspension,” she added.
Despite the effect this may have on Anglo American’s business, the effect is likely to be less dramatic on the global iron ore market and the fines benchmark, because the volumes produced by Minas-Rio in 2017 accounted for less than 1% of global iron ore output, according to Metal Bulletin Research.
“Our concentrates inventories are already running high and therefore the Anglo outage will not affect us,” a steel mill source said.
Another mill source in China added that the recovery in domestic production will serve as a substitute for the tonnage lost to Anglo’s outage.
But some changes have already been felt by other market participants.
A Chinese mill source with knowledge of the issue said that he expects to have only one shipment from Minas-Rio affected during the miner’s outage period. Steel output will not be affected, however, because the company had already planned for fewer shipments to arrive this year because of an issue concerning Anglo American’s mining license in Brazil earlier this year, although this has already been resolved.
He also said that the steelmaker can turn to the use of domestic iron ore concentrate or Pilbara Blend fines, because it uses Minas-Rio material for sintering rather than pellet-making.
Meanwhile, a trader in Singapore played down the effect of the outage because he expects the affected volume to be only 2 million tonnes.
If the stoppage lasts for more than 90 days, however, there could be more visible support for the market premium on pellet feed, he added.
Another trader involved in the concentrate business said that premium values have “already been buoyed” greatly by reduction in supply.
A third steel mill source said that sintering plants using Anglo’s concentrates will be able to find alternatives, though there might be some effect on the concentrates premium from the outage.
Prices The production suspension at Minas-Rio should certainly affect the market for high-grade iron ore.
The market for concentrate and pellet feed is a lot smaller than for fines, so an outage of at least 90 days, equating to 4 million tonnes, will be felt, according to Metal Bulletin index manager Peter Hannah.
With the nature of the market, the effect is more likely to be seen in the high-grade benchmarks – Metal Bulletin’s 65% Fe Fines Index and 66% Concentrate Index – than in the MBIOI-62 mid-grade fines price.
The outage also coincides with strikes at IOC’s Canadian mines and an already-tight market for concentrates at Chinese ports, so it is not surprising to see stronger prices in the concentrate and pellet feed market this week.
A 65,000-tonne cargo of 65% Fe basis Karara concentrate was traded on the Corex platform on April 8 at the monthly average of a 65% Fe fines index plus $6.50 premium, and the latest MBIOI-CO calculated at $89.27 per tonne – up $2.23 per tonne from the previous week’s value. In contrast, the weekly increase in the MBIOI-62 was just $0.64 per tonne.
Another group of market participants that may be affected are the direct-reduction route steelmakers in the Middle East-North Africa region (Mena), because Minas-Rio iron ore is used in the region as a direct-reduction-grade pellet feed.
Metal Bulletin’s DR-grade Pellet Premium Index was last calculated at $62.50 per tonne on March 29.
Environment The Brazilian environmental institute, Ibama, on April 10 imposed a fine of 72.60 million Reais ($21.35 million) on Anglo American because of the slurry pipeline leaks.
The amount of the fine is in reference to the two leaks on March 12 and March 29. The miner will have to carry out thorough tests on all pipeline tubes, according to Ibama.
“The operation will remain interrupted until the publication of a technical report attesting to the safety of the installations,” the institute added.
The penalty followed a 125.50 million Reais fine applied by the Minas Gerais environmental secretariat, Semad, on April 4 for the damages caused by the pipeline rupture.
When the pipeline ruptured, slurry volumes – a combination of iron ore and water – leaked into a local stream in the city of Santo Antônio do Grama, in Minas Gerais state.
Also, Anglo American announced on April 16 that 766 employees, or 36% of its Minas-Rio workers, will go on vacation for a 30-day period while its operations remain at a standstill.