Yesterday, market rumors Vale announced force majeure to Chinese steel companies. According to SMM, no steel mills have clearly received notice of force majeure. However, industry insiders said that only individual enterprises may have received force majeure notice, specific may affect the supply of fine powder and pellets.
According to customs data, in 2018, China imported about 89 million tons of refined powder, of which Brazil accounted for about 11 per cent. China imported about 18.79 million tons of pellets in 2018, of which Brazilian pellets accounted for about 14 per cent. Therefore, assuming that the supply of all pellets and refined powder is affected, about 800000 tons of Brazilian fine powder and about 220000 tons of Brazilian pellets are affected each month in China.
In addition, SMM also conducted another communication and research with some domestic steel companies on the Vale incident:
Steel enterprise A: although there is an agreement with Vale, but so far they have not received their force majeure notice; before the festival that short-term events lead to a surge in the current market, after the festival gradually return to rationality. At present, due to the emergence of production is not smooth, gradually hovering on the edge of profit and loss, therefore, the mining price can continue to rise in the later period is skeptical. If the profit compression of steel mills is significant, it is considered that mining prices do not have the power to rise sharply.
However, it also said that as the Vale event continues to ferment, expectations of a decline in ore supply in the later period are enhanced, and the overall operating range of ore prices may rise to US $80 accessories.
Steel company B: Vale event continues to ferment, as its inventories have been replenished to March, currently closely watching the market. It is believed that if mining prices continue to rise, the impact on them will be delayed by about a month. However, for the steel mills that come back to purchase after the festival, the ore cost is equivalent to nearly 200 yuan per ton, which translates to the total production cost of about 300 yuan per ton, and the profits of individual steel enterprises begin to be compressed.
Steel enterprise C: all spot procurement, inventory is not much, less than the end of February, this week is also concerned about the market to get some goods. Match ratio has been adjusted to low and medium grade before the festival, profits continue to be compressed, but not reduce production, first reduce procurement as needed.
Steel company D: inventory can be maintained almost until the end of February, prices in the past few days in the correction, they are not very worried, mostly think that the current price will still return to rationality. The market over-interprets Vale, and they can respond by, for example, adding medium-to-low-grade minerals. Moreover, China itself is in the process of iron and steel production control, which suppresses the demand for ore; at the same time, scrap steel also has a certain replacement.
Since the 25th local time in Brazil, Vale, southeast of Minas Gerais, an iron ore waste mine dam burst on the same day after the accident; On the 29th, Vale CEOFabio Schvartsman said: the company has decided to do whatever it takes to put an end to the safety risks of the dam. The company will unswervingly shut down 10 dams such as the Brumadinho dam over the next three years. The overhaul, which is expected to cost nearly $1.1 billion, will affect 40 million tons of iron ore a year, including 11 million pellets of fine powder.
Since then, during the Spring Festival, on the evening of 4 February, a Brazilian court ordered Vale (Vale) to suspend production in the Brucutu mining area in the state of Minas Gerais. It is reported that the Brucutu mining area is the largest mining area in the state, with an annual capacity of about 37 million tons of iron ore. Although the company said it was taking a legal approach to resume production and operation in the mining area as soon as possible, but at present, there is a lot of resistance.
Subsequently, part of Vale's sewage treatment plant at the Tubarao port iron ore complex was partially closed, affecting the operation of the port coal facility and the four pelletizing plants, which operate a total of eight pelletizing plants. The iron ore pelletizing capacity of Tubarao Port complex is more than 36.2 million tons per year, and the affected No. 1-4 pelletizing plant accounts for about half of the total production capacity of the complex.
As of today (14 February), Vale (Vale) officially announced that its sewage treatment system has been cleaned up and has signed an agreement with the Victorian City Government to resume operation of its integrated facility in Tubalang Port. The yard, No. 1-4 pelletizing plant and port coal services, which had previously been suspended, have resumed operations.
Let's go back to the 40 million tons of iron ore production affected by the shutdown of 10 dams. Vale had planned to increase its northern system, including the S11D project, by 20 million tons in 2019. After the accident, production is expected to be reduced by 20 million tons. At the same time, for the Brucutu mining area, which has a capacity of 37 million tons, although the mine is actively seeking to resume production as soon as possible through legal channels, in view of the serious consequences of the accident, if Vale is unable to apply for the resumption of production in the Brucutu mining area in the short term, The impact on production will be further expanded. At present, we temporarily estimate that Vale production may be reduced by 57 million tons, that is, 40 million tons + 37 million tons-the originally planned increase of 20 million tons = 57 million tons, the actual impact of the follow-up remains to be seen.
On this basis, SMM collated the supply changes in the world's major mines in 2019, as shown in the following chart:
According to the chart above, the new output of iron ore in the world's major mines increased by 54.6 million tons in 2019 to a reduction of 15.2 million tons at present, and the relationship between supply and demand continued to improve, but the data did not include changes in production in China, India, and Iran.
According to SMM Steel, if the price of imported minerals hovers around $80, domestic refined powder production is still expected to increase by about 10 million tons in 2019, taking into account environmental protection, policy and resource depletion.
In the short term, after the mining disaster was overdrawn by the futures market at the same time, there has been a rational correction in market prices in recent days. Moreover, considering that the current terminal demand for steel has not yet begun, the sharp rise in mining prices has squeezed the profits of steel mills, and steel mills do not have enough power to accept high prices.
In the medium to long term, with the gradual impact of the supply side after the mine accident, superimposed the release of downstream demand at the end of the first quarter and the second quarter, the steel market is still expected to fluctuate upward. Steel mill profits rise, superimposed ore supply tightening, mining prices are still expected to continue to rise, the annual operating range is expected to rise.