Iron ore production overview
Vale’s (VALE) own iron ore production, excluding iron ore acquired from third parties and Samarco’s attributable production, hit record levels for a first quarter, coming in at 74.5 million tons. That’s 8.5 million tons less than in the previous quarter but 3.5 million tons more than in the same quarter in 2014. The quarter-over-quarter decline is mainly a result of weather-related seasonality.
The company’s Northern system produced 27.5 million tons in 1Q15, which is the best performance ever for a first quarter. Ramp-ups at Plant 2 and Serra Leste contributed to the increase.
The Southeastern system consists of the Itabira, Minas Centrais, and Mariana mining hubs. Combined, these operations produced 25.9 million tons in 1Q15, in line with 1Q14.
The Southern system encompasses Paraopeba, Vargem Grande, and Minas Itabirito mining hubs. These operations produced 19.8 million tons in 1Q15. That’s 1.6% less than in 4Q14 and 3.9% less than in 1Q14. Performance suffered as a result of excessive rainfall.
The Midwestern system includes the Urucum and Corumbá mining hubs. This system produced a total of 1.3 million tons in 1Q15, 13.4% less than in 4Q14, mainly due to equipment shortages.
Vale’s Tubarao VIII pellet plant is ramping up. This led to an increase over 4Q14, up to 1.5 million tons of pellets in 1Q15. Production in 1Q15 totaled 11.4 million tons. This total excludes Samarco’s attributable production of 3.5 million tons in the first quarter.
The ongoing ramping up of iron ore capacity by the majors—including BHP Billiton (BHP), Rio Tinto (RIO), and Vale—coupled with weaker demand from China, is leading to an unprecedented pressure on iron ore prices. This is hitting all the iron ore names, but relatively low-cost miners are still doing well. On the other hand, smaller companies with high debt, such as Cliffs Natural Resources (CLF), are severely impacted by this price collapse. CLF forms 3.8% of the SPDR S&P Metals and Mining ETF (XME).
For more on Vale’s iron ore operations and its four systems, read Vale SA: The iron ore giant deconstructed.