Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Vale has revised its year-end iron ore production capacity to 343mn mt from 350mn mt citing potential setbacks at Itabira, Sistema Norte and Mutuca operations.


Temporary tailings disposal issues at Itabira could lower annual capacity by 2mn mt while temporary licensing issues at Mutuca, Northern System and others could decrease annual capacity by 5mn mt. 


Vale hit 330mn mt annual capacity in Q2, with Serra Leste operating at its 6mn mt and completion of unmanned train operation at Timbopeba site and maintenance at the Ponta da Madeira Terminal. 


In base metals, the Reid Brook deposit at the Voisey’s Bay Mine Expansion Project produced its first ore. The Reid Brook and Eastern Deeps will reach an annual production rate of 40,000mt of nickel concentrates by 2025, with about 20,000mt of copper and 2,600mt cobalt as by-products.



Iron ore 

On the supply side, ore output would increase in H2 2021 compared to H1, demand could be impacted by production cuts in China.


In Q2, iron ore Fe 62pc reference price averaged $ 200.0/dmt which was 20pc higher than Q1. Ore prices rose in Q1 and Q2 amid constrained supply, strong demand in China and a recovery in demand in the rest of the world. 


Prices of medium and high-grade ores were also supported by steel prices hitting records highs in most regions. Despite higher costs, steel prices corrected only when Chinese authorities intervened. Potential steel production cuts in China are expected to keep prices and margins higher. 


Chinese environmental restrictions will also impact coal production in the country. Also, a rise in steel production ex-China will increase coal demand. Thus, high steel margins coupled with higher coke prices are expected to provide ‘a very strong support’ for iron ore premiums through H2.


China’s economy and industrial sectors have continued to expand steadily in H1, though the growth has slowed. Ex-China, the steel industry continues to improve and all major markets have recovered to pre-pandemic levels. Steel demand is strong but supply chains are constrained amid limited availability for imports, pushing prices to record highs. 



Vale’s long-term outlook for the metal remains very positive. For 2021, Vale expects a refined market in a deficit as demand continues to strength through H2, especially from the US and European end-users. Spot TCRCs ended Q2 nearly 40pc below the 2021 benchmark [$59.5/t (TR) and $ 5.95 cents/Ib (RC)]. Additional support from fiscal stimulus, increasing ESG commitments, and the speedy shift to renewable energy sources will support copper demand.


Ambitious decarbonization targets and growing emphasis on the green economy, coupled with decreasing costs of renewables have lifted Vale’s long-term growth forecasts. 


On the supply side, growth is struggling amid a decline in ore grades and no major discoveries. Current assets will suffice demand in the short term, but significantly more high-grade assets will be needed to replace existing operations that are ramping down or winding down to meet medium to long-term demand. A proposed hike in taxes and royalties in Chile and Peru could defer investment in key greenfield projects.



The long-term outlook remains very positive, driven by strong demand from EVs which have achieved cost of ownership parity with ICE vehicles. Aggressive decarbonization targets set by governments and the infrastructure push are strengthening the markets impacted by the pandemic. In the long term, the net-zero emission ambition is expected to drive growth in stainless steel, aerospace and energy markets.


Financials Q2 

In Q2, Vale’s proforma adjusted EBITDA rose to $11.239bn driven by the higher iron ore and pellets prices and increase in sales volumes. 


Ferrous Minerals EBITDA was $10.679bn, up $2.868bn from Q1, while Base Metals EBITDA fell to $866 million, $145mn lower than Q1. 


Nickel business EBITDA fell to $430mn, $212mn lower than Q1 amid stoppage costs due to labour issues at Sudbury and a fall in byproducts revenues. 


Copper EBITDA improved by $67mn to $436mn driven by higher sales volumes.

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