Vale Initiates Iron Ore Production Cut

Continuous increase in price pressure on iron ore across the globe has led to production cut.

Brazil’s Vale, world’s largest iron ore miner for 2015, has planned to cut higher cost iron ore production by 25 MnT, while maintaining its production target of 340 MnT for the year. Earlier, in Apr’15, the company considered cutting its production by 30 MnT for this year as iron ore prices had drastically slumped to a 10-year low during that month.

The company has now decided to withdraw 25 MnT of its high cost production this month, and produce with higher margins. The cut will be from its high silica ore (low quality products) mines in south and south east Brazil, as there will be an oversupply of the material in the market this year. Through this step the company targets not to shut mines, but to optimize some production flow at plants.

However, world’s second largest iron ore miner, Rio Tinto continuous to stick to its expected production of 330 MnT iron ore this year. Also, another major miner, BHP Biliton, expects 250 MnT production this year.

Impact on Global Iron ore Prices

Currently,Brazilian fines containing Fe 63.5% is recorded at below USD 50/MT, CNF China, which is a 3-week low. In addition, imports of the world largest buyer China has dropped continuously since past two months owing to weaker demand in the country.

Global Prices of iron ore are much more volatile now-a-days as China lowered iron ore purchases owing to weaker demand, limited steel production, low trade volumes due to seasonal effects, sufficient inventories at major ports.

It is assumed that production cut by Vale might be considered as initiation step for other miners as it might provide some support to continuous falling global iron ore prices.

Global Iron Ore Prices as on 14 July’15

CNF China prices
Source: SteelMint Research