With China soon to be importing 1.3 billion
tonnes of iron ore each year, twice as much as at
present, mining companies in Brazil are preparing
to share in the bonanza.
Work on building two large new mines will
start soon, expansion works at two big existing
mines have been resumed and dozens of smaller
mines are being opened.
If all goes according to plan, at least 500mt
(million tonnes) of ore will be exported from
Brazil each year in five or six years’ time,
compared with the 300mt to be shipped this year.
Work on opening a new mine at Vales’
Carajas complex, suspended last year when
demand slumped, has resumed. About 120mt a
year will be taken by rail to the port of Ponta da
Madeira in 2012, compared with close to 90mt
last year.
Apart from the extra million tonnes exported
last year by Samarco, jointly owned by Vale and
Anglo American and the 2mt extra exported
from Anglos Santa mine in Amapa state, less was shipped through
all other Brazilian ports last year as in 2008, with the exception
of Ponta da Madeira.
Twenty million tonnes less was shipped by Vale and associated
companies through the Tubarao terminal in Espirito Santo state,
following the closure of several high-cost mines in Minas Gerais
state.
Work will start almost immediately on Anglo’s new mine in
Minas Gerais state, and about 26mt are expected to be shipped
each year from a new port to be built at Acu, in Rio de Janeiro
state by 2012. Ore will be taken to the coast in a 520km-long
slurry pipeline. Anglo expects its new mine to be producing
80–90mt by 2016, when the mine will be the world’s fifth largest.
This will result in Anglo being responsible for about 10% of the
transoceanic ore trade by 2016, compared with the company’s
present 3% share.
The other brand new mine, also in Minas Gerais state, has
been bought by the Chinese-owned Honbridge Holdings from
Brazil’s Votorantim giant, which dominates the cement, aluminium
and pulp industries in Brazil. Up to 25mt will also be taken by
pipeline from this mine in slurry form to a new port to be built
close to Ilheus, in Bahia state.
The CSN steel company is to raise output at its Casa da
Pedra mine in Minas Gerais state from the current 16mt to 55mt
by about 2012 and the extra ore will be taken by rail to either
Rio de Janeiro or Guaiba port.
At least half a dozen new steel mills will be built in Brazil in
the next ten years, taking the country’s steel-making capacity to
close to 60mt, almost double the present total. But rather than
relying on ore bought from Vale, as they now do, most of the
companies concerned, such as Mittal-Arcelor, Usiminas and
Gerdau, plan to open mines of their own, rather than have to
rely on Vale for supplies.
Although the quality of Brazilian ore is higher than most of
that found in Australia, and much higher than that in India or
China, the long journey to China, now firmly established as the
world’s leading importer of iron ore as well as maker of steel, has
been a serious handicap for Vale and the other ore exporters in
the past few years.
Freight rates have frequently been as high as the cost of a
tonne of ore, about $80 per tonne.
To overcome this problem, Vale has ordered twelve
400,000dwt-capacity ore carriers from yards in China. Following
pressure from president Lula, to step down after eight years in
power in January next year, and who is trying to pave the way for
his chosen successor by introducing populist measures, Vale has
agreed to order some more costly ships in Brazilian yards, which
will increase demand for steel.
It is still not quite clear how the price at which ore is sold will
be fixed from now on.
For the past 40 years, prices have been agreed at secret
negotiations between the world’s three large ore producers, Vale,
Rio Tinto and BHP and the leading steel companies in Japan and
Europe, the ‘benchmark’ system.
In theory at least, ‘benchmark’ contracts remain in force for at
least a year, although many are for far longer than that.
But with demand often greater than supply, the ‘spot’ price of
ore has sometimes risen to twice the benchmark price in the
past few years.
This has encouraged some ore companies to propose that the
benchmark system should be scrapped, with all deals done on the
spot market in future.
A worry is that it costs many billions of dollars to open a
brand new mine and build the associated infrastructure. Without
the guarantee of fixed prices for ore for a set period, many such
investments might not materialize.
Speculators looking for large short-term profits, as well as
banks eager to take a cut, clearly prefer ‘spot’ prices, where
fortunes can be made for little effort.
But the canny Japanese, as well as many steelmakers in China
and most executives at Vale are not happy about the proposed
switch. They note that spot prices can tumble to well below the
‘benchmark’ price if things suddenly turn sour.
For the time being, there is a deficit of somewhere between
20–60mt between supply and demand, which has caused prices
to remain high.
But concern is growing that the recent restrictions on bank
lending in China could take the wind out of the current
infrastructure boom there. If that happens, ore prices could fall
as fast as they have risen.
 
Patrick Knight