Indian Pellet Export Prices Set to Rise on Vale Supply Disruption - Reports

• Vale reports a supply disruption of 10-11 mnt pellets and 40 mnt iron ore annually after the dam mishap
  
  
• Vale can replace Iron ore supply from the new mining projects however pellets will be challenging
  
  
• Industry expects pellet premium may test $90 per tonne (current premium is around $40 per tonne)
  
  
• Indian Pellet makers raise export offers citing the possible global shortage.
  
  
• India holds 40% of China iron pellet imports.
  
  

After the recent mishap, Iron ore miner Vale has announced plans to halt 40 million tonnes of iron ore production including 10-11 million tonnes of pellet production, so that it can decommission dams similar to the one that burst last week.

Indian Pellet export industry which turned gloomy following the decline in export prices in last quarter of CY18 has turned on a merry mood after Vale dam collapse. Anticipating shortage of seaborne pellet in the near short term after Vale incident, Indian pellet exporters are eyeing for hike in offers.

What is Vale dam collapse all about?

Vale- world's largest iron ore producer underwent collapse at its dam at Corrego do Feijao mine in Minas Gerais in Brumadinho, Brazil on 25th Jan'19. At Feijao mine dam 1 collapsed, which used to dispose of tailings from ore production, resulting in casualties.

The tailings dam used to store waste material at the Corrego do Feijao mine was built in the 1970s using the "upstream construction" method.

Estimated impact on production volumes

The company has announced decommissioning of all its dams to reintegrate them to the environment. To accelerate the process of dam decommissioning, the company will have to stop production of iron ore in nearby areas. The estimated impact of the production halt is around 40 MnT of iron ore per year, including the pellet feed needed for the production of 11 MnT of pellets per year.

As per reports, the anticipated net loss will be around 10-15 MnT of iron ore production as Vale has plans to ramp up production from other mines (S11 D) which might compensate for the output loss.

Will seaborne pellet market witness supply constraints?

According to trade sources report, Vale can replace iron ore supply from the new mining projects however for pellets it will be challenging. Also, resumption of operations at Samarco in 2020 stands questioned at the moment. All these factors are likely to bring a supply disruption in seaborne pellet market in near term.

Indian pellet exporters eye high offers

Indian pellet makers have raised their expectation for fresh bookings. Some mills are eyeing a level of USD 114-115/MT CFR and some are expecting that prices may even go up to USD 118-119/MT CFR China after China re-opens. Last deals reported were at USD 111/MT, CFR basis a couple of days back. Although Chinese mills have turned on a holiday mood ahead Lunar New Year holidays, but Indian pellet making companies are hopeful of further price hike.

Spot pellet premium which is currently trading at around USD 40/MT, CFR is expected to rebound to the levels of USD 80-90/MT, CFR had last seen in Sept'18 following supply interruption from LKAB.

It would be interesting to see whether hike in pellet export offers result in the surge in domestic offers too, considering lower domestic iron ore prices and demand.

India holds 40% share in China iron pellet imports

According to the data maintained with SteelMint, China pellet import was around 16.07 MnT in CY'18. India was the largest pellet exporter to China in CY'18 and accounted 40% total China pellet import at 6.48 MnT in CY'18 followed by Brazil 3.13 MnT, Ukraine 2.17 MnT, and Australia 1.5 MnT.

Will Vale dam collapse result in the surge in Indian pellet export offers?

Will spot pellet premium rebound to the $80-90 levels. To know more book your seat at 3rd Indian Iron Ore & Pellet Summit to be held on 18-19 Feb 2019 at the Leela Ambience, Delhi NCR, India.