Vale reported a strong fourth quarter, but has pledged to add quality tonnes in iron ore rather than just boost scale
\nExecutives at the Brazilian giant say while grade premiums are weak, the pellet market will stand out
\nNeeded in green steel tech, Vale has boosted its high grade offering in a JV with Anglo American<\/p>\n
Australia\u2019s largest competitor in the iron ore game has signed a deal to up its output of DRI grade iron ore as it focuses on quality and costs in the face of a weakening steel market.<\/p>\n
The Chinese steel sector has failed to fire in early 2024 after a surprise rise in output in 2023, with production down 6.9% to 77.2Mt in January.<\/p>\n
That has seen port stockpiles lift to levels not seen since April last year, with a 2.6% rise in early February steel output reported by the China Iron and Steel Association not enough to prevent iron ore prices falling to multi-month lows.<\/p>\n
After a 5% dive on Monday, Singapore futures lifted almost 1% yesterday afternoon to US$116.55\/t.<\/p>\n
The recent moves came off a long run above US$130\/t that surprised many pundits staring glumly at China\u2019s depressed property market and weak steel margins, that have seen iron ore majors post strong profits in the back half of 2023.<\/p>\n
Fortescue (ASX:FMG)<\/a> delivered a 41% lift in profit and 44% jump in half year dividend last week, with Rio\u2019s (ASX:RIO)<\/a> full year profit of US$10.1b ($15.4b) just 19% down on lower aluminium prices and inflationary pressures.<\/p>\n BHP (ASX:BHP)<\/a> delivered a US$927m half-year profit, but that was influenced by a big writedown on its nickel business and provisions for the Samarco dam disaster, with underlying profit of US$6.6b propped by a 27% lift in iron ore earnings to US$9.7b.<\/p>\n Vale \u2014 which produced 321Mt of iron ore in 2023 \u2014 made US$6.73b in EBITDA in the fourth quarter, up 35% YoY and 50% QoQ, and delivered US$19.04b in adjusted EBITDA from continuing operations in 2023, down 9% on prices for iron ore, copper and nickel that were lower across the calendar year on average.<\/p>\n The Brazilian iron ore and base metals giant will deliver US$2.4 billion in dividends in March on top of US$2b in dividends and interest paid in December in anticipation of the results.<\/p>\n But while iron ore prices have been strong, Vale\u2019s focus has not been on growing production.<\/p>\n Its guidance for 2024 has been set at 310-320Mt, below this year\u2019s export levels, with the miner using its quarterly call to reiterate its focus on quality.<\/p>\n \u00a0<\/p>\n In one sense that means keeping a lid on costs, something all the majors want to do to remain at the bottom end of what is, in iron ore, an extremely steep curve.<\/p>\n Outside of third party purchases, Vale sold its product at a C1 cost of US$22.3\/t in 2023 and US$20.8\/t in the December quarter, roughly on a par with Rio and above BHP and FMG.<\/p>\n But it is the company\u2019s commitment to supplying products for green steel that stands out against its peers.<\/p>\n It is blessed with good geology. Brazil is one of the few places on the planet, along with West Africa, where large deposits of 65% Fe + iron ore can be found in situ.<\/p>\n Other miners, like those in the Pilbara and Canada, must upgrade lower grade magnetite resources with energy intensive, finicky and expensive processing to hit premium grades.<\/p>\n Higher grade producers weren\u2019t rewarded like they may have expected in 2023. Low margins at steel mills saw the spread between low grade product \u2014 like that sold by FMG \u2014 and premium products like those sold by Vale collapse. Fortescue\u2019s realisation of the 62% Fe benchmark rose to a high 89% in the December half.<\/p>\n But even as it ups higher silica sales in its product mix with steel mills looking to cut costs, Vale appears to be focusing on the long-term expectation that steel technologies will favour less carbon intensive processes in the future, investing in high grade sources of both hematite and magnetite iron ore.<\/p>\n It has notably acquired a 15% ownership stake in Anglo American\u2019s Minas-Rio complex in Brazil, which has the capacity to produce around 26.5Mtpa of DRI quality pellet feed. It will also open the door to the development of an adjacent deposit owned by Vale in the 2030s.<\/p>\n Direct reduced iron steelmaking does not use met coal and could theoretically be done carbon-free if green hydrogen can be used to replace gas in the process, but relies on extremely pure and high grade iron ore.<\/p>\n Vale also signed an MoU to look at building a briquette plant for a green steel project in Puertollano in Spain.<\/p>\n Vale\u2019s executive VP of iron solutions Marcello Spinelli told analysts on a call that while premiums for higher grade iron ore were weak, it was bullish on the pellet market.<\/p>\n \u201c\u2026We see this level of premiums flat in this moment,\u201d he said. \u201cPremiums for pellets, we on the other hand are really bullish for that. <\/p>\n \u201cDirect reduction is really under pressure. Production in the Middle East and the US is going really well. So it\u2019s supporting a high level of premiums. And for blast furnaces, we also see a rebound as ex-China, in Asia like Japan or in Europe are now demanding more the blast furnace pellets. <\/p>\n \u201cAnd as we have a possibility of narrow discount for high silica ores, we take advantage of that and we can use our supply chain, our flexibility in our portfolio, to maximise the margin if you keep this scenario of low margin in the steel making in China.\u201d<\/p>\n While BHP booked US$3.5b in additional provisions for Samarco after an adverse court decision in Brazil, Vale added just US$1.2b to its obligation on the 50-50 JV.<\/p>\n CFO Gustavo Pimenta said it was a \u2018best estimate\u2019 with Vale aiming to use cashflow from Samarco to cover some of the liabilities. It produced around 9Mt in 2023, with a second concentrator coming online in early 2025 to bolster production to 14-16Mt.<\/p>\n Pimenta said Samarco, where a dam disaster killed 19 people and left hundreds homeless in 2015, would be producing 28Mtpa by 2028.<\/p>\n \u00a0<\/p>\n Scroll or swipe to reveal table. Click headings to sort.<\/em><\/p>\n CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN % YEAR RETURN % MARKET CAP ACS Accent Resources NL 0.01 0% 43% 25% -60% $ 4,731,272.83 ADY Admiralty Resources. 0.007 0% 0% 17% -22% $ 9,125,054.07 AKO Akora Resources 0.145 7% 16% -12% -12% $ 15,197,250.24 BCK Brockman Mining Ltd 0.028 4% 4% 12% 8% $ 250,566,267.54 BHP BHP Group Limited 44.04 -4% -7% 2% -4% $ 222,872,488,434.39 CIA Champion Iron Ltd 7.72 -7% -5% 33% 2% $ 4,076,040,048.62 CZR CZR Resources Ltd 0.275 0% -14% 77% 31% $ 64,827,027.65 DRE Dreadnought Resources Ltd 0.018 -10% -18% -57% -78% $ 69,631,459.20 EFE Eastern Resources 0.007 -13% 0% -36% -56% $ 8,693,625.23 CUF Cufe Ltd 0.014 -18% -30% -13% -22% $ 16,045,573.11 FEX Fenix Resources Ltd 0.245 -4% -9% -17% -11% $ 170,181,390.40 FMG Fortescue Ltd 27.52 -3% -5% 31% 23% $ 85,749,172,966.30 RHK Red Hawk Mining Ltd 0.645 0% 8% -16% 53% $ 117,664,503.45 GEN Genmin 0.160002 0% 0% 0% -5% $ 79,339,701.97 GRR Grange Resources. 0.415 -6% -14% -16% -61% $ 497,655,640.14 GWR GWR Group Ltd 0.095 1% 9% 1% 64% $ 30,515,582.23 HAV Havilah Resources 0.15 0% -3% -44% -57% $ 47,495,881.50 HAW Hawthorn Resources 0.08 -4% -18% -33% -20% $ 27,806,295.88 HIO Hawsons Iron Ltd 0.033 -11% -18% -8% -56% $ 32,167,487.07 IRD Iron Road Ltd 0.058 0% -11% -36% -42% $ 51,812,661.22 JNO Juno 0.067 -14% -29% -9% -24% $ 13,827,839.76 LCY Legacy Iron Ore 0.015 -6% -12% -6% 0% $ 96,102,392.99 MAG Magmatic Resrce Ltd 0.037 23% -10% -39% -63% $ 10,393,555.13 MDX Mindax Limited 0.04 0% -17% -20% -32% $ 81,822,351.20 MGT Magnetite Mines 0.265 0% -4% -34% -55% $ 25,592,976.50 MGU Magnum Mining & Exp 0.02 -9% -5% -41% -5% $ 16,187,228.06 MGX Mount Gibson Iron 0.485 -6% -11% 14% -13% $ 589,218,610.51 MIN Mineral Resources. 64.61 8% 9% -1% -24% $ 12,499,738,849.12 MIO Macarthur Minerals 0.125 -17% -14% -29% -4% $ 19,950,418.56 PFE Panteraminerals 0.048 -21% -2% -45% -58% $ 6,498,504.90 PLG Pearlgullironlimited 0.037 37% 23% 61% -18% $ 7,568,046.23 RHI Red Hill Minerals 5.4 4% 8% 26% 10% $ 334,214,625.10 RIO Rio Tinto Limited 123.13 -6% -7% 14% 4% $ 45,503,683,512.12 RLC Reedy Lagoon Corp. 0.005 25% 0% -29% -43% $ 3,097,703.66 CTN Catalina Resources 0.005 25% 67% 25% -41% $ 6,192,434.46 SRK Strike Resources 0.049 40% 23% -16% -38% $ 11,350,000.00 SRN Surefire Rescs NL 0.011 0% 0% -27% -21% $ 19,631,578.13 TI1 Tombador Iron 0.014 0% 0% -36% -46% $ 30,218,753.22 TLM Talisman Mining 0.175 -17% -15% 21% 17% $ 32,956,061.08 VMS Venture Minerals 0.017 0% 143% 21% -26% $ 35,466,875.23 EQN Equinoxresources 0.27 13% -10% 59% 35% $ 29,340,750.87 AMD Arrow Minerals 0.005 0% 0% 67% 0% $ 26,735,060.38 <\/p>\n WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n The return of Chinese workers from Lunar New Year celebrations generally provides a little kick for the economy and, in general, energy demand.<\/p>\n Supply side issues in oil and gas are also helping fossil fuels.<\/p>\n \u201cCrude oil prices gained on signs of tightening in physical markets. US spot prices have strengthened in recent weeks to the highs of the week as refineries benefiting from strong margins snapped up barrels. This is likely to see stockpiles drawdown in coming weeks,\u201d ANZ\u2019s Blair Cameron said.<\/p>\n \u201cConcerns over Chinese demand are abating, as refineries continue brisk buying in the physical market after a boom in Lunar New Year travel. <\/p>\n \u201cThis is despite them having planned more maintenance halts than usual. Supply side WTI Oil prices rose 1.9% yesterday, with Asian LNG purchasing in China rising as well. Cameron said eight new LNG import terminals will start operations in China this year. <\/p>\n Generally higher oil and\/or gas prices are bullish for thermal coal, given it is a cheaper alternative. Thermal coal prices rose 6.8% to US$127.50\/t yesterday.<\/p>\n Coking coal prices fell alongside weakness in iron ore, but remain above US$300\/t.<\/p>\n There was little support for coal miners on the ASX yesterday, with most of the big players focusing more on coking coal and Yancoal (ASX:YAL) <\/a> down 0.87% amid word from the AFR a Chinese investor was trying to shop a $200 million stake comprising 2.7% of the company.<\/p>\nCosts and grade<\/h2>\n
ASX iron ore stocks<\/h2>\n
Thermal coal bounces back as China returns<\/h2>\n
\nissues remain supportive. An oil field in Libya was briefly shut down by employees demanding better pay and conditions.\u201d<\/p>\n