| Russia's military operations in Ukraine could push up iron ore prices and exacerbate an iron ore pellet shortage, Vale executives say. The company's Northern System iron ore mine in Brazil is pictured above. Source: Giles Barnard/Construction Photography/Avalon/Hulton Archive via Getty Images |
Russia's military operations in Ukraine could strain the global supply of iron ore pellets used to make steel, pushing up prices and exacerbating a shortage in the global market, an executive of Brazilian mining giant Vale SA said during a Feb. 25 earnings call.
Russia and Ukraine boast some of the world's largest iron ore reserves and resources, and the countries are responsible for a significant portion of the world's iron ore pellet production, according to Vale. In terms of iron ore exports by volume, Ukraine ranks fifth globally, having exported about 44.4 million tonnes of iron ore products in 2021, according to S&P Global Platts.
"We've been hearing and receiving calls from our clients in Europe and East[ern] Europe to support them," said Marcello Spinelli, Vale's executive vice president of iron ore. "We are trying to arrange our supply chain to help them, but there is limited action for the short term."
Iron ore prices were already climbing before Russia's offensive in Ukraine started. The NYMEX 62% Fe price hit $142.66 per tonne Feb. 24, up from $141.11/t on Feb. 18.
Vale reached 340 million tonnes per year of iron ore production capacity in 2021 and expects to increase its production capacity to 370 million tonnes per year in 2022. The miner produced 31.7 million tonnes of iron ore pellets in 2021, increasing 6.8% from 2020 output. It resumed operations at its Vargem Grande pellet plant in Brazil in January, but pellet feed remained restricted from its Itabira and Brucutu operations.
"My first reaction is that we don't have extra supply to support a shortage coming from this region, and the first impact will probably be in the pellet premium," Spinelli said of the impacts of a Ukraine-Russia conflict.
Vale's net income during the final quarter of 2021 jumped to $5.43 billion from $739 million year over year. During the fourth quarter of 2020, the company paid out a $3.9 billion settlement for the 2019 collapse of the Feijao iron ore mine dam in Brazil, which killed 270 people. Vale's net operating revenue during the fourth quarter of 2021 declined to $13.11 billion from $14.64 billion year over year.
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