Vale says soaring costs put 10% of iron ore in the red
Rising fuel and shipping expenses squeeze producers as weak Chinese demand and new supply push prices to two-year lows.
Vale's CEO, Gustavo Pimenta, disclosed on Friday that the company's global iron ore supply has become unprofitable for around 10% of its producers due to escalating energy and freight costs stemming from the Middle East conflict. The Brazilian mining giant has estimated that approximately 160 million tonnes of annual iron ore supply is operating at a loss, with about 15 million tonnes already taken offline because of the soaring costs.
Pimenta stated in a Bloomberg TV interview that prices are expected to rise in the near future, not due to shifts in supply and demand, but rather due to the impact of freight rates, with fuel prices being higher. Iron ore futures in Singapore recently fell below $90 a tonne for the first time in two years, marking a 15% decline this year, largely influenced by weak Chinese demand and abundant global supply, including new production from Guinea's Simandou mine.
The combined effect of falling prices and increased operating expenses is putting pressure on miners' margins, particularly for marginal producers. Pimenta anticipates production cuts to help rebalance the market and potentially encourage a price recovery, although the timing of such an outcome remains uncertain. He also expressed optimism about Chinese demand and Brazil's mining policies ahead of the country's upcoming presidential election on Oct.
25, highlighting that both candidates involved in the election have acknowledged the benefits of bolstering the sector through faster permitting procedures and other measures. A recent Quaest poll suggests that right-wing candidate Flavio Bolsonaro is trailing leftist incumbent President Luiz Inacio Lula da Silva by just two percentage points, a margin within the survey's margin of error.
Bolsonaro, the son of former President Jair Bolsonaro, is currently serving a 27-year prison sentence for plotting a coup after losing the 2022 election. In terms of regulatory reforms, Pimenta has advocated for accelerated environmental approvals and expanded geological mapping to attract mining investment, potentially unlocking major developments such as a proposed 50-million-tonne annual production capacity mine from Vale.
The outcome of these regulatory changes could significantly impact Vale's ability to expand production and discover new deposits.
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