ANALYSIS: Iron ore disruptions in southern Brazil may support recovery in spot prices

Heavy rainfall in the iron ore hub of Minas Gerais state, southeastern Brazil, led to mining and railing disruption for Vale and other operators, supporting a recovery in benchmark China iron ore import prices.

Iron ore prices in China had rebounded in the last few months, with Platts IODEX 62%-Fe fines assessed at $127.30/dry mt CFR China on Jan. 7 from a 2021 low of $87.20/dmt on Nov. 18.

Prices earlier in 2021 reached record levels, with a sudden change in spot demand and steel market conditions in China pushing cargo bidding down, ahead of a recovery in forward demand since December.

The increase in iron ore demand followed stronger steel production plans and stimulus anticipated in China after a fourth-quarter 2021 adjustment in output.

Strong global steel prices and demand into seasonally weak first-quarter supply may have pushed up prices, with global production outlook and volume keeping stable.

Vale, Usiminas and other mine operators reported halts, including at the Brucutu and Mariana complexes, with a section of the Estrada de Ferro Vitoria a Minas railway for railing ore to Tubarao suspended. Brazil is China's second-largest source of iron ore after Australia. Vale's Southern and Southeastern Systems accounted for around 40% of the company's iron ore production in the first nine months of 2021.

Vale is used to operating in southern Brazil with periodic disruptions to railways for iron ore shipments and operates three major port terminals in the region.

Chinese and other buyers have become more accustomed to specialized iron ore products and segments for operating efficiencies and blending, as well as pollution control. Brazil offers low alumina iron ores and grades, which are blended into products such as Vale's BRBF fines, and ground into concentrates at ports.

Vale said Jan. 10 on review of its production with its larger northern Brazil Carajas-based operation that the company was maintaining its 320 million-335 million mt guidance for 2022. Vale in Nov. 29 estimated it would produce 315 million-320 million mt of iron ore in 2021.

The rainy season typically impacts operations across Brazil, along with rain and cyclones in Australia, and winter weather in Canada and Russia. These usually lower shipment rates and prompt availability in the first few months of the year.

Vale's Southern System iron ore operations, which usually export out of terminals in Rio de Janeiro state, have been temporarily halted across all mines, the company said. The Southern System includes the Fabrica and Vargem Grande pellet plants. Fabrica has not yet restarted since 2019. Vale, Usiminas, Gerdau, CSN Mineraco and other miners supply Brazilian steel plants as well as export.

Vale estimates

Vale earlier estimated producing 34 million-38 million mt of pellets in 2022, across its plants in Brazil and Oman, before ramping up to 50 million mt in 2023.

Vale's larger Southeastern System network of mines and beneficiation plants supplies high-grade pellet feed for plants in Tubarao, Vitoria, and blending stock for terminals in Asia. While Brucutu has idled, the Itabira complex was not currently affected, Vale said.

It was raining heavily and Southeastern Brazilian iron ore supplies in January may be affected, an iron ore executive in Belo Horizonte said early Jan. 10.

Anglo American's Minas-Rio business and Samarco -- Vale and BHP's joint venture pellet producer -- operate iron ore mines in Minas Gerais, and each relies on their own slurry pipelines to transport the ore to the coast for exports. Samarco production has not been halted by the rains, a source close to the operation said. Anglo said Minas-Rio had seen no impact. Samarco did not immediately respond for comment.

Trafigura said it had no comment on the trading group's Brazil-based iron ore mining, origination and shipping activities. Trafigura exports Minas-Gerais based iron ore sinter fines from Impala Terminal's Porto Sudeste.

Following iron ore tailings dam bursts in Brazil, leading to the Brumadinho and Mariana disasters, the government has required more rigorous checks and classifications at sites.

Vale said it continues to monitor its dams in real-time with the rainfall, and there was no data leading to changes in the emergency classification level in any of its structures.

Brazil's tailings dams are designated emergency levels, classified using the Emergency Action Plan for Mining Dams, or PAEBM. A move to a more serious designation could impact operations if data shows the dam is determined to be at varying risks of rupture, with periodic National Mining Agency inspections.

Usiminas said Jan. 10 due to the heavy rains in the region, its mining unit activated 'Level 1' of PAEBM for its Central Dam on Jan. 8, which had been deactivated since 2014. Level 1 signifies an initial state of alert only, rather than representing any compromise in the dam's safety, it said.