Vale achieves record sales, output in Q2 as iron ore market chases quality

Brazilian miner Vale achieved record sales of 86.5 million tonnes of iron ore in the April-June quarter of 2018, up by 5.8% year-on-year, with its premium products accounting for a higher proportion of overall sales amid the iron ore market’s “flight to quality.”

Metal Bulletin’s daily 65% Fe Iron Ore Index averaged $85.50 per tonne cfr China in the three months to the end of June, $19.60 per tonne higher than the average for the daily 62% Fe Iron Ore Index in the corresponding period in 2017.

In the second quarter of last year, the gap between the 65% and 62% indices was $13.60 per tonne.

“Vale’s sales mix improved substantially year-on-year, as a result of the ramp-up [in activity at the company’s S11D project in Brazil’s northern Carájas region] and the decision to progressively reduce low-grade ore production,” the company said.

The share of premium products – pellets, blended ores, pellet feed and low-alumina sinter feed – increased to 77% of total sales in the second quarter of 2018, up from 68% in the second quarter of 2017, thus maximizing the benefit of rising market premiums, it added.

The miner’s iron ore production totaled 96.8 million tonnes in the April-June quarter, up by 5.3% year-on-year, and Vale has maintained its production guidance figure for the year at 390 million tonnes.

Pellet production was 12.8 million tonnes in the second quarter, up by 5.1% year-on-year, principally because of the resumption of production from the Tubarão I and II pellet plants in Brazil.

Vale expects to achieve pellet production of 55 million tonnes this year, it said.

The miner noted that its iron ore production in the quarter was marked by materials with lower silica and lower alumina content. This was a result of the S11D ramp-up, and the curtailment of high-silica production in the company’s Southern and Southeastern Systems in Brazil since the third quarter of 2017.

Variations in pricing for alumina and silica contents in seaborne iron ore recently have underlined Chinese buyers’ increasing sensitivity toward the alumina content in their shipments, along with their usual pickiness about silica.

Metal Bulletin’s monthly Value-In-Use (VIU) Indices show that the penalty for 1% alumina was $6.51 per tonne on July 2, compared with $2.80 per tonne on January 2.

For silica, the figure was $1.64 per tonne on July 2, compared with $4.03 per tonne on January 2.

Earlier this year, Vale said that the grade differentials for iron ore reflected a structural change in the market, a view that was echoed by other iron ore miners such as BHP and Rio Tinto.