China steel output peak still ahead of us – Vale

Brazilian iron ore giant Vale says it has noted some recent improvement in production and sales in the Chinese steel industry despite a slight decline in output in H1.

“It’s true that there’s a transition phase in China’s steel industry now. However, we still believe that the peak is still ahead of us and we’ll see over 900Mt of Chinese steel production per year between 2020 and 2025,” Peter Poppinga, Vale’s ferrous minerals executive director told reporters in a Q2 conference call.

Output from China, the world’s largest steel producer, was 410Mt in the first half, down 1.3% year-on-year from 415Mt. Global production in the six months was 813Mt, down 2.0%, according to the latest World Steel Association data.

“So that’s going to come. Chinese steel exports will increase, that’s for sure, as they’re almost at the pace of 100Mt per year,” Poppinga said.

PRICE AND DEMAND

China imported 453Mt of iron ore in January-June, with 83% of it coming from Australia and Brazil, up from 74% in H1 last year, according to Chinese customs data.

As a result, supply from smaller miners become less stable, leading some Chinese steel mills to prefer buying from the top global miners Vale, and Australia’s Rio Tinto and BHP Billiton, international media reported.

“Our unit cash costs and expenses for iron ore fines landed in China adjusted for quality and moisture reduced from US$43 in 1Q15 to less than US$40 in the following quarter on a dry metric ton basis,” CEO Murilo Ferreira said in the call.

In the meantime, Vale sees its iron ore fines prices in China declining even more in the next two years, when its extraction project S11D will be almost fully ramped up. Requiring US$19.6bn, it involves the construction of an open pit with capacity to produce 90Mt/y of iron ore to be shipped to China at a cost almost as low as that of competitor Rio Tinto.

“Then, we’ll be very close to the US$30/t mark, despite having no firm guidance on that. But prices will come down dramatically from now,” Poppinga said.
 

                                                                                                                                                 

                                                                                                                                                   


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