Brazil’s steel industry faces crisis due to Vale’s cuts

Vale SA’s decision to stop production at ten of its sites in Minas Gerais has impacted Brazil’s steel production output. Iron ore pellet deliveries to Brazilian steelmakers are severely affected, according to Reuters. Reports suggest some steel producers are resorting to cutting their production capacity by as much as 40%. Such is the case for privately owned Grupo Ferroeste’s pig iron unit in Espírito Santo, where one of the blast furnaces has been turned off, according to Reuters.

Steel lobby group, Aço Brasil, fears that more steel makers may follow suit and halt production if the supply shortage is not normalized. The organ urged authorities to reassess the safety of the tailings dams located in Minas Gerais. Vale is trying to alleviate the situation by shipping the iron ore pellets from northeastern Maranhão to clients in the southeast, inflating logistics costs.

Brazil’s National Mining Agency passed a new regulation on February 15 which prohibits all tailings dams built with the upstream method. Companies have six months to produce a decommissioning project and must conclude deactivation of inactive dams by August 15, 2021, and active dams by August 15, 2023. According to the consultancy firm, Wood Mackenzie, out of the total 226 iron ore tailings dams in the country, 35 dams are potentially affected by the new regulation.

DatamarNews reported Vale’s absence in the iron ore market may also shift dynamics inside Brazil, especially for companies that sell run-of-mine ore to Vale. A Brazilian junior, Centaurus Metals, is currently sitting on a JORC (Joint Ore Reserves Committee) resource of 128m tons and an initial ore reserve of 48.5m tons, at its fully-permitted Jambreiro project in Minas Gerais. According to Centaurus, the reserve is “ideally positioned” to supply high-quality iron ore to domestic steel mills. With iron ore prices heading towards US$100 a ton, the odds are in favor of Centaurus, for now.

The following DataLiner graph shows Vale’s iron ore (HS 2601) export trends since 2006:

Sharing is caring!