China’s appetite for higher-grade iron ore means that Vale is already looking at expanding capacity at its S11D complex in Brazil to meet demand.
Brazil’s Vale (NYSE:VALE) is reportedly exploring options to increase capacity at its S11D mine in the Amazon in order to meet demand for iron ore from China.
The S11D complex is not yet at capacity, but as reported by Bloomberg, the company is in talks with the Brazilian federal environmental agency to increase ore-processing infrastructure and the hauling capacity of the railway connecting it to the port.
The S11D Eliezer Batista complex in Pará state is touted by Vale to be the largest single mining complex in its history.
S11D can produce 90 million tonnes of iron ore annually grading 66.7 percent. The company began mine earthworks in 2014, and S11D began operations in 2016.
As of November 2018, the complex is not yet at capacity, and is slated to reach its 90 million tonne nameplate capacity in 2020.
According to Bloomberg, Vale recently met with Ibama, the Brazilian federal environmental agency, to explore options that would help the company retain its position as a key exporter to China, which according to analysts is maintaining a hefty appetite despite the trade war.
That, coupled with tighter environmental regulations from Beijing, is driving demand for higher-grade iron ore which Vale is tapping into.
Analysts recently polled by FocusEconomics said that they expect iron ore prices to fall in the coming quarters due to Chinese caps on steel production, and trade tensions between China and the US, meaning that Vale’s declaration in late August that it would tie higher iron production to a higher price is possibly already dead given their interest in expanding output.
In September, the company had indicated it was interested in expanding output, while according to reports, Vale CEO Fabio Schvartsman said recently that the company would have a decision on what it planned to do “in a very short period of time”.
Expanding S11D would be significantly cheaper for the company than establishing an entirely new complex.
On the NYSE, Vale enjoyed a bump in value on Thursday (November 15) and by market close was trading at US$14.93, up 2.75 percent.
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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.